31 December 2026 is fast approaching – the deadline by which the legislative amendment adopted at the end of 2024 extended the 5% reduced VAT rate applicable to new residential properties in Hungary. At first glance, the two-year extension of the 5% VAT on homes appears to be a straightforward amendment, yet the detailed rules paint a more nuanced picture. A developer-friendly element is that for many projects the reduced tax rate may remain applicable until 31 December 2030. In practice, however, it is not the 2030 date but the 31 December 2026 permitting deadline that is of primary importance. Those developers who obtain the necessary construction authorisations by the end of this year may enjoy the benefits of the 5% VAT rate for years to come. Let us examine the conditions.
Which residential properties are eligible for the 5% VAT?
The preferential VAT on homes applies exclusively to the sale of certain new residential properties in Hungary. Under the Hungarian VAT Act, a residential property qualifies as new if:
- the first occupancy of the dwelling has not yet taken place, or
- two years have not elapsed between the first occupancy and the sale,
- and also if two years have not yet elapsed since a change of purpose (e.g. conversion into loft apartments) or a change in the number of independent functional units.
To benefit from the preferential VAT rate, the dwelling must also meet the following size requirements:
- for a flat within a multi-occupational residential property: a maximum usable floor space of 150 m²;
- for a detached family home (single-occupational residential property): a maximum usable floor space of 300 m².
The change does not affect the entire new-build residential market uniformly: housing developments located in statutorily designated brownfield action areas may remain eligible for the 5% preferential VAT on homes even after 2027. For properties of this type, a tax refund support may also be claimed under certain conditions.
Beyond the subject matter of the transaction, it is equally important that the reduced VAT applies only to specific types of transactions – namely the sale of a property or a turnkey contract – and not to construction, renovation, maintenance or similar services.
Timing matters!
Between 2027 and 2030, the 5% VAT on homes in Hungary can be maintained only if at least one of the following conditions is met:
- the building permit became final by 31 December 2026;
- the simple notification was submitted no later than 30 September 2024;
- or the simple notification under the new architectural rules was acknowledged by 31 December 2026.
In that case, the 5% VAT rate remains applicable to advance payments and sales between 2027 and 2030.
On the developer side, the lead time of the permitting procedure must above all be taken into account, including any supplementary documentation requirements and all administrative steps necessary for the project to meet the transitional rules in time.
What does the phasing-out of the VAT on homes mean for the residential property market?
Many fear that the discontinuation of the 5% VAT on homes will automatically trigger a price increase of more than 20%. The situation is, however, more complex.
Due to the transitional rules, numerous projects currently in preparation will still be sold with the reduced VAT rate until the end of 2030. As a result, the market is expected to split into two segments:
- Developments that obtain the necessary authorisations in time, as well as brownfield site projects, will continue to be sold at the preferential VAT rate.
- For developments starting after 2027 that do not satisfy the transitional rules, however, the standard tax rate will apply.
In the case of a property with a net value of HUF 100 million, this could result in a value difference of HUF 22 million. In reality, it is not expected that this full amount will be passed on to buyers. The additional burden is likely to be distributed among developers, landowners and buyers, which is why the actual market impact may only materialise gradually.
What should developers and buyers bear in mind?
Developers who obtain the necessary building permits or meet the conditions of the transitional provisions by the end of 2026 may retain the benefits of the 5% VAT on homes in Hungary until the end of 2030. For a development worth tens of billions HUF, this can represent a competitive advantage running into the billions, which is why, in the coming months, planning the permitting process and the VAT structure may be at least as important as the architectural or financing concept itself.
On the buyer side, checking the permitting status is essential. It is not sufficient to verify whether the property is a new build. It is advisable to ask the developer when the building permit became final and on what legal basis the sale qualifies for the 5% VAT rate.
For high-value transactions it is worth expressly recording in the contract at which VAT rate the purchase price was determined, and what happens if the transaction ultimately does not qualify for the 5% tax rate. It is also important to clarify in advance who bears the additional cost of any tax change and whether the project satisfies the conditions of the preferential rules.
The transitional rules affect not only final performance but also the treatment of advance payments, so the payment schedule may also have a significant VAT impact.
For both developers and buyers it can be a critical question when, until when, and under what conditions the 5% VAT on homes is applicable to a given residential property in Hungary. A thorough review of the documents, an assessment of the timelines, and a mapping of the risks can all justify the involvement of an expert in the project. If you need advice on the 5% VAT charged in connection with the purchase of new residential properties, or on other tax issues related to real estate, our VAT professionals are here to help!
This article is for general information purposes only and should not be considered as advice.
