Transfer tax increase will raise the cost of buying property

As of 2013, transfer tax will be imposed on the debt-free price of dwellings; rents could also be affected

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From the beginning of next year, buyers of new homes will be facing a rise in costs running into several thousands of euros.
      The government intends to increase the transfer tax payable on sales of homes and to extend it to cover even mortgages carried by housing cooperatives.
      For example, the transfer tax on a typical new family residence in Helsinki will rise from a few thousand euros to the tune of ten thousand euros.
      In the future, prices of old dwellings carrying loans - taken out for example for piping renovation projects - will also go up.
     
The purpose of the tax hike is to collect more money to the state’s coffers.
      The government made a decision on the increase in March, when it agreed upon the economic framework over the next few years.
      The Ministry of Finance estimated that the change would result in additional revenue of about EUR 80 million on an annual basis.
      In practice, the transfer tax will rise from 1.6 per cent to 2.0 per cent, and the government’s tax base will expand so that tax will be paid also on any given residence’s share of liabilities.
      Hitherto the tax, basically a kind of stamp duty on property transactions, was levied on the sales price of the dwelling, and not on the total price including loan obligations. In a new property, this difference can be substantial to say the very least.
      ”This is more like general collection of money rather than taxation policy”, says Teemu Lehtinen, President of the Taxpayers’ Association of Finland.
      However, he regards the tax hike as ”an easy and clear way to collect tax revenue”.
     
A preliminary ruling by the Supreme Administrative Court ten years ago determined that the share of liabilities of a new residence was to remain outside the tax net.
      In order that the tax would in the future apply to the entire debt-free price of homes, the Ministry of Finance is preparing an amendment to the law that is to be circulated for comments still before the summer holidays.
      Today the selling prices of new homes are often only half of their debt-free prices.
      As construction companies act like this, buyers do not necessarily have to take very large loans, whereupon the transfer tax also remains relatively low.
      ”It is crystal clear that mortgages carried by new buildings are higher than the ones for example five years ago”, says Managing Director Risto Kyhälä of the Huoneistokeskus real estate agency.
     
According to the Ministry of Finance, imposing taxes on large shares of liabilities will standardise the taxation of new and old residences.
      However, first-time home buyers will be exempt from transfer tax.
      No one can say yet whether the tax will apply to homes on which a deal has been struck by the end of this year, but which will be completed in 2013.
      Economics researcher Elias Oikarinen, an expert in real estate investment, has criticised the government’s plans. He says that the higher costs of buying a home are bound to slow down the housing market, making living difficult for households.
      Kyhälä of Huoneistokeskus does not expect the planned tax hike to have any great impact on the sales of homes, as housing is strongly based on people’s basic needs.


Previously in HS International Edition:
  Researcher sees appropriate balance between rents and costs of home ownership (29.5.2012)

Links:
  Taxpayers´ Association of Finland

Helsingin Sanomat