Government proposal to abolish immovable property acquisition tax goes to chamber of deputies
At its session on 30 April 2020, the government passed a proposal to abolish the tax on the acquisition of immovable property, with retrospective effect. Individuals will no longer have the option to deduct from their income tax base interest paid on loans taken to acquire real property. The time test for exempting from personal income tax proceeds from the sale of real property other than for an individual’s own housing purposes shall be extended.
The government is proposing to abolish the tax on the acquisition of immovable property for transfers where the deadline for filing the tax return expires on or after 31 March 2020, meaning transfers where the title was registered in the Real Estate Register in December 2019 and later. If the tax was already paid before the proposed amendment’s effective date, it shall be refunded to the taxpayer.
The government has combined the abolition of the property acquisition tax with an amendment to the Income Tax Act. In the amendment, it proposes to cancel the option of deducting interest paid on loans used to finance housing needs from the personal income tax base. The original proposal by the Ministry of Finance assumed that for a certain time, interest may still be deducted if the taxpayer opts for the current regime of immovable property acquisition tax. After debate, the government modified the proposal so that it will still be possible to deduct interest paid on mortgage and other loans concluded by the end of 2021 from the tax base, regardless of whether the acquisition of the real property was subject to the property acquisition tax. According to the Ministry of Finance, interest may be deducted by any buyer acquiring an immovable item in December 2021 and earlier. This means that for property acquired between December 2019 and December 2021, buyers shall not have to pay tax on the acquisition of immovable property, but they may still deduct interest on loans for housing purposes from their tax bases.
The government also proposes to extend the time test for exempting income from the sale of immovable items not intended for an individual’s own housing purposes from 5 to 10 years (the original proposal assumed 15 years). The extended time test should apply to sales of real property acquired after 1 January 2021. Under the amendment, the exemption shall remain if the seller uses the proceeds from the sale to satisfy their own housing needs.
The bill still has to go through the standard legislative process. It is thus possible that further changes will be made to the proposed wording.