The bill including the reintroduction of the 5% VAT on homes was submitted to the Hungarian National Assembly on 27 October. Bill T/13477 submitted to Parliament includes the amendments of certain laws necessary to implement the Housing Support Action Plan. Based on the reasoning in the bill, the amendment is aimed at setting a rate of 5% VAT on homes for the sale of property for “socio-political” purposes. It also provides exemption from paying the onerous property acquisition duty determined when buying new property for Hungarian families with children claiming family housing support.
CSOK, but no duty
From 1 January 2021 the bill would ensure full duty exemption for families with children claiming family housing support (CSOK) when buying a new property, irrespective of whether the acquired property is new or used, or of how much its sales value is.
If someone was exempt from the duty based on an advanced award of the CSOK, but the agreed number of children were not born, and thus the support must be paid back, the Hungarian tax authority will subsequently charge the onerous property acquisition duty. In such cases, the duty is based on the sales value at the time the duty obligation arose, and at the rate effective on that date. The right to determine the duty elapses within five years of repaying the support, or on the last day of the calendar year in which an official resolution is issued regarding the repayment.
However, the duty does not need to be paid back if the conditions for having children are not fulfilled for health reasons.
Return of 5% VAT on homes
The bill modifies the Hungarian Act on Value Added Tax too. For a temporary period from 1 January 2021 until 31 December 2022, the sale of newly built property would again be subject to 5% VAT on homes. For transactions concluded this year, the tax rate should be defined based on the transitional rule related to the termination of the 5% VAT rate as of 31 December 2019. This transitional rule would be repealed by the bill from 1 January 2021.
The transitional rule terminating the 5% VAT rate as of 31 December 2022 will set forth the conditions under which the preferential 5% VAT on homes will be applicable until 31 December 2026. The preferential tax rate may be applied on this basis if the building permit is finalised no later than by 31 December 2022, or if the associated construction is registered by 31 December 2022 pursuant to the rules of simplified reporting.
The preferential 5% VAT on homes is applicable if the total usable floor space does not exceed 150 square metres for an apartment in a block, and 300 square metres for a single-unit detached house. Pursuant to the VAT rules, property shall be regarded as new if it has not yet been properly used, or if it has, then two years have not yet passed between its approval for use and its sale.
If you need advice on how to apply the 5% VAT on homes, or on other issues related to real estate, our tax experts are here to help.