Changed rates and a cancelled exemption in transfer taxation
Following a Government proposal for a new legal act, the transfer taxes on real estate, on shares in housing companies and on other securities will be lowered.
In accordance with the legislative proposal:
- Transfer tax on immovable property (real estate) would be 3% instead of today’s 4%
- Transfer tax on immovable property (shares in housing companies) would be 1.5% instead of 2%
- Transfer tax on purchases of other kinds of securities would be 1.5% instead of 1.6%
If the Finnish Parliament adopts the proposal, the amended Act concerning transfer taxes would go into effect as of 1 January 2024. However, some of its provisions would be applicable from Thursday 12 October 2023 on. This means that the Tax Administration would refund any excess tax to some taxpayers. If taxpayers buy immovable property, including residential property, corporate stocks and other securities during the final months of 2023, any transfer taxes paid in accordance with the “old” rates would be refunded. These refunds would consist of the rate adjustment and interest. The refunding would take place in early 2024.
First-time homebuyers will no longer enjoy exemption
The government proposal also envisages withdrawal of the exemption accorded to first-time buyers of residential property from 1 January 2024. During 2023, all first-time homebuyers’ purchases of property will still be exemptible. If the contract of purchase is signed on or before 31 December 2023, the transfer-tax exemption continues to be valid.
Your contract’s date determines tax percentages and tax exemptions
The date when the buyer and seller of immovable property sign their binding contract determines the applicable rate of transfer tax. In the case of first-time homebuyers, the date of signing also determines whether the buyer is entitled to exemption. This means that in the context of the legislative changes, the date when ownership gets transferred from one party to the other is not important. For example, the transfer dates of ownership have normally been important – instead of contract signing dates – when new apartments in housing companies are sold to buyers before the building is fully constructed. Any contracts of purchase having a preliminary character are not important from the transfer tax perspective. Instead, the important date is the date when the binding contract is signed.
Example 1. A set of housing-company shares in a newly constructed building was sold on 11 October 2023. According to the contract, the buyer does not get the apartment’s rights of ownership and possession until 15 January 2024 when the rights are transferred. Because the contract was signed before the government proposal was put forth on 12 October 2023, the purchase is subject to the 2% tax rate. Because of the date of signing, the buyer cannot benefit from the new lower tax rate.
Example 2. A preliminary contract for the sale of corporate stocks was signed on 15 September 2023. The final, binding contract of sale is signed on 15 November 2023. Because the date of signing the binding contract is later than the Government proposal’s date, the new 1.5% transfer tax rate will apply.
Example 3. On 31 December 2023, the seller and buyer sign a contract for an apartment in a “new construction”. The contract concerns the relevant set of shares in the housing company that owns the new building. The apartment is completed on 15 April 2024 and placed into service as a permanent residence from that date. If the buyer is a first-time homebuyer and all the other requirements are met, the exemption from transfer tax.
Example 4. Property (land) is sold on 31 December 2023. The buyer builds a detached house on the property. The house is completed on 15 November 2024. This also is the date when the house becomes a permanent residence under definition of law. The buyer applies for the registration of their title to the property in January 2024. The transfer tax return form is submitted and the tax is paid according to the new 3% transfer tax rate before the application for title registration is submitted. As long as the other requirements are met, the buyer qualifies for the first-time homebuyers’ exemption from transfer taxes. After the house is completed and placed into residential use as defined by law, the buyer can request a refund of any transfer tax the buyer may have paid.
What to do if you buy a home before end of 2023
The old tax rates continue to be the ones you need to enter on the transfer tax return form. In the same way, if the due date is a 2023 date, you also need to pay your transfer tax in accordance with the old rate. However, the Tax Administration will refund the difference between the old and the new rate to you. Refunding will take place during 2024, interest will be added to the amount, and there is no need for you to submit a request or application.
On the other hand, if the due dates fall in 2024 for the transfer tax return and the payments, we recommend that you, the buyer, deal with your transfer taxation in 2024 instead. In other words, you can take advantage of the new lower rate already when submitting the return and paying the tax.
If by 31 December 2023, you buy shares in an existing – not a newly constructed – housing company and you use the services of a real estate agent when contacting the seller, you will have to pay the tax immediately when the purchase contract is finalised. The Tax Administration will apply the new, lower rate to the contract afterwards. As you have paid transfer tax excessively, the Tax Administration will refund the difference between the old and the new rate to you. Refunding will take place during 2024, and there is no need for you to submit a request or application. Make sure that the Tax Administration has your bank account number. You can log in to MyTax to check this.
If you buy shares in a housing company and there is no real estate agent assisting you, you need to submit a transfer tax return, and then pay the tax in 2 months from the date when you and the seller signed the contract.
- Accordingly, if the contract date is 1 November 2023 or later, the deadlines for both submitting the return and paying the tax will fall in 2024. So, after 2024 has begun, you can take advantage of the new lower rate directly when you submit the return and pay the tax.
- On the other hand, if the contract date is a date prior to 1 November 2023, you need to apply the old rates when you submit the return and pay the tax. As you have paid transfer tax excessively, the Tax Administration will refund the difference between the old and the new rate to you. Refunding will take place during 2024, and there is no need for you to submit a request or application. Make sure that the Tax Administration has your bank account number. You can log in to MyTax to check this.
If you buy a newly constructed home in the form of shares in a new housing company, submit the return and pay the tax within 2 months of the date when the right of ownership is transferred to you.
- Accordingly, if the transfer of ownership took place 1 November 2023 or on a later date, the deadlines for both submitting the return and paying the tax will fall in 2024. So, after 2024 has begun, you can take advantage of the new lower rate directly when you submit the return and pay the tax.
- On the other hand, if the date when ownership is transferred to you is a date prior to 1 November 2023, you need to apply the old rates when you submit the return and pay the tax. As you have paid transfer tax excessively, the Tax Administration will refund the difference between the old and the new rate to you. Refunding will take place during 2024, and there is no need for you to submit a request or application. Make sure that the Tax Administration has your bank account number. You can log in to MyTax to check this.
If you buy a family house, a detached house, or land or other immovable property falling into the category of real estate, submit the transfer tax return and pay the tax before you submit an application for registration of title – the final deadline for title registration is 6 months from the date of signing the binding contract. If you apply for registration on 1 January 2024 or later, you can take advantage of the new lower rate directly when you submit the return and pay the tax.