Real estate article series Part 8: When can I be exempted from paying duty and VAT?

Before you buy a property, it is important to clarify what other costs you will have to bear as a buyer in addition to paying the purchase price. As sellers, we should also remember that the proceeds from the sale of the property will normally be taxable.

 

In Part 8 of our series of articles on real estate, we will look at the rules on the payment of fees and taxes on the sale of real estate, the exemptions from paying them and other likely cost implications.

 

What costs incur in the course of a Sale & Purchase transaction of a Real Property?

 

Costs payable by the seller:

 

– the cost of obtaining an energy certificate (the energy certificate is valid for 10 years from the date of issue)

– personal income tax on the amount of the purchase price received

 

Costs payable by the buyer:

 

– e-certified title deed fee (from 01 January 2023, HUF 3.000,- per property) 

– our article on the content of the title deed is available here

– fee for administrative services of the land registry for registration of ownership (HUF 6.600,- per property)

– transfer duty payable on the purchase price of the property

– lawyer’s fees (in compliance with the contract with a lawyer)

 

Do I always have to pay the duty with regards to purchase of a Real Property as a buyer?

 

Generally when buying real estate (whether a house, land, garage or flat), the buyer is liable to pay a reversionary transfer tax (or property acquisition tax) of 4% (the rate of the tax) on the purchase price of the property (in this case the taxable amount). The competent body of the NAV will notify the buyer of the imposition of the duty to be paid and the method of payment by issuing a payment order. The obligation to pay the duty arises on the day the contract is concluded. The maximum amount of duty payable per property is HUF 200 million.

 

However, there may be circumstances in which no or only partial levies are payable. According to the applicable legislation, there are legal conditions under which the buyer is exempt from paying the transfer duty on the transfer of property in rem – i.e. is entitled to exemption from the duty – or is only partially liable to pay the duty – i.e. is entitled to a reduction of the duty. As the law on duty may provide for a number of cases, the most common ones are described here without claiming to be exhaustive.

 

Examples when the Buyer is exempt from paying duty:

 

1. a) a transaction concluded applying the Family Home Building Allowance (CSOK)
2. b) in the case of a so-called replacement purchase: in such case a purchase of a residential property we require the following if the buyer has sold another residential property within a maximum of 3 years prior to the purchase or undertakes to sell it within the next 1 year of the purchase and the purchase price of the residential property sold is higher than the purchase price of the purchased residential property
3. c) transaction between direct relatives (e.g. between parent and child, but also including adopted children)
4. d) transaction between spouses
5. e) the purchase of a plot of land suitable for building a dwelling, if the buyer undertakes to build on it within 4 years of acquisition
6. f) transaction between connected enterprises (see Section 4, point 23 of the Tao Act), if the main activity of the acquiring enterprise is the rental or operation of rented property owned by the enterprise itself or the sale of property owned by the enterprise itself

 

Cases of entitlement to a reduction of duty (partial levying):

 

1. a) in the case of a so-called replacement purchase: in such case of a purchase of residential property, if the purchaser has sold another residential property within a maximum of 3 years prior to the purchase or undertakes to sell it within the next 1 year of the purchase and the purchase price of the residential property sold is lower than the purchase price of the purchased residential property, in which case the 4% duty payable is payable on the difference between the purchase price of the residential property purchased and the purchase price of the residential property sold.
2. b) In the case of the acquisition of the first residential property by a buyer under 35 years of age, the buyer is exempt from paying 50% of the duty payable if the purchase price (market value) of the entire residential property (1/1 share of ownership) does not exceed HUF 15 million
3. c) in case of acquisition of a first residential property, an instalment rebate – for a maximum of 12 months, an equal monthly instalment rebate can be applied for

 

Please keep in mind that either a duty rebate or a duty exemption is not automatically granted but should be deliberately applied by the buyer via a separate B400 form provided by the tax authority. In most cases, the lawyer acting for the buyer in the sale and purchase transaction will already prepare this form and submit it to the competent authority together with the application for registration of ownership, so the buyer will no longer need to do this separately.

 

When should and when shouldn’t pay personal income tax on the sale of the Real Property?

 

As a general rule, the seller is liable to pay 15% personal income tax on the proceeds from the sale of the property on his taxable income, provided that the property sold was acquired within 5 years. If the seller acquired the property at least 5 years ago, he is no longer liable to pay personal income tax on the sale of the property. The date of acquisition is deemed to be the date of submission of the contract of sale to the Land Registry. 

 

How should the taxable income be calculated?

 

The actual income should be determined: deduct from the income (purchase price) the deductible costs (amount spent on the acquisition of the property, cost of capital improvements, etc. as defined in the VAT Act). The income calculated on this basis is nothing more than the part of the income less the costs. To calculate the actual income, we recommend using the calculator also available on the NAV website.

 

The amount of actual income calculated is further reduced (except in the year of acquisition and the following year) on the basis of the time elapsed between acquisition and sale as follows: 

 

100% in the year of acquisition and the 1st year afterwards 

90% in the 2nd year after acquisition

60% in the 3rd year after acquisition

30% in the 4th year after acquisition

 

Personal income tax at the rate of 15% is payable on the taxable amount reduced as above and must be declared to the NAV in the VAT return by 20 May of the year following the submission of the sale and purchase agreement to the Land Registry.

 

If the seller sells the property in or after the 5th year following its acquisition, the taxable part of the income is 0% – i.e. the tax liability ceases in this case. 

 

In order to clarify the specific tax issues of the property, it is recommended to consult an accountant and/or tax advisor.

 

Authors: dr. Farkas, Szabolcs László and dr. Bajcsay, Gergely

 

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If you are considering buying a property, please contact our office and get in touch with us. We will assist you in the complete management of your real estate purchase transaction (from making the purchase offer, through the preparation and submission of the contract to the registration of the title in the land registry), whether it is a sale or purchase by an individual or a company.

 

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Please note that the general information provided in this article is for informational purposes only and does not constitute legal advice. We do not assume any liability for any misinterpretation of the above information or for any changes in the law that may have occurred in the meantime. If you have a specific question or legal problem, we are able to provide individual advice after consultation with our office and after a full investigation of the case.