Has the end come for the real estate transfer tax?

The finance ministry’s bill proposing the abolition of the real estate transfer tax (which is 4% of the total purchase price) passed third reading in the House of Deputies on 8 July 2020.

The current rate of the real estate transfer tax is 4%. It was introduced in 1993, and then had to be paid by the seller in the case of any transfer of buildings or land for consideration. The transfer of new buildings was exempt from payment of this tax. In November 2016, the buyer (acquirer) became the payer of this tax.

A tax return must be filed and the tax must be paid by the end of the third month following the month in which the ownership title to the given property was entered in the cadastral register.

Provided that the newly proposed abolition of the real estate transfer tax is successfully written into law, the abolition will have retroactive effects, in that it is designed to cover all real estate acquisitions after December 2019. In those cases, in which the tax was already paid, the abolition ought to trigger an excess payment for which the taxpayer may request a refund.

Also, the government passed what it calls „Alleviation Package III” in June, which in effect extended the time period for filing the tax return for the real estate transfer tax and for paying this tax until the end of 2020 (because it waives all sanctions associated with late filing or payment). This means that any current outstanding payment of such tax need not be remitted.

Originally, the plan was to also abolish the option to deduct the interest on newly concluded mortgage loan agreements from one’s income tax base as a tax-exempt item. However, this option was preserved in the end; only the cap for such deductions will shrink (effective as of 1 January 2022) from originally CZK 300,000 to CZK 150,000.

All this means that buyers won’t pay any tax on the acquisition of real estate after December 2019 but will still be able to deduct interest on the loan used to finance this acquisition (of residential space for their own use) from their tax assessment base.

According to the finance ministry, the measure seeks to stimulate the real estate market and to help young families by giving them easier access to home ownership.

Another change affects the tax on capital gains from selling real estate. Sellers must pay this tax unless they are eligible for an exemption, which in turn requires the fulfillment of several conditions. One of them – known as the holding period criterion – is now changing. Real estate in which the taxpayer does not themselves reside must now be held for at least 10 years (as opposed to 5 years under previous law). This change takes effect as of 1 January 2021. However, it still remains the case that the taxpayer is completely exempt from this tax on sales if they permanently lived in the given property for at least two years.

The Senate will discuss these changes of legislation during its 26th session on 10 August 2020.

Act No. 340/2013 Coll., as amended by Act No. 254/2016 Coll.

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