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New Duty Payment Obligation to Hinder Real Estate Specula

New Duty Payment Obligation to Hinder Real Estate Specula

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At the beginning of December 2019, the Hungarian Parliament accepted an amendment to the Hungarian Duty Act, which is supposed to enter into force on 1 February 2020.

It is clear that the market value of properties in external area increases once they are drawn into inner area. According to the reasoning of the amendment, the objective of the new law is to discourage speculative activities, the sole intention of which is to realize material profit from drawing properties in external area into inner area. The duty payment obligation aims to reduce this speculative method and curb the abuses.

Based on the amendment, the transfer of a property drawn into inner area or of the share of a company owning such plot will be subject to duty payment obligation. The amendment introduces the definition of the “property drawn into inner area” (in Hungarian: “belterületbe vont ingatlan”), which means a plot that has been drawn into in inner area during the owning period of the seller or during the period of being the beneficiary of its pecuniary rights, but not earlier than within 10 years prior to the transfer. This rule will also be applicable in certain other cases, for example if the property has been drawn into inner area not by the seller, but by a person who donated the plot to the seller. However, a plot should not be considered as a property drawn into inner area that has been specified as inner area in the 6th year following the acquisition of the plot by the seller or later, or if it has been inherited by the seller.

The basis of the duty is the difference between the market value of the property transferred and the market value of the property at the time of its acquisition (i.e. the profit realized). The rate of the duty is 90% and it must be paid by the seller. In addition, the sellers of such properties or the share of a company owning a plot drawn into inner area will have notification obligation to the tax authority. 

The rules mentioned above will be applicable for cases where the drawing of property into inner area has been executed following 31 January 2020.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

Hungary Knowledge Partner

Nagy és Trócsányi was founded in 1991, turned into limited professional partnership (in Hungarian: ügyvédi iroda) in 1992, with the aim of offering sophisticated legal services. The firm continues to seek excellence in a comprehensive and modern practice, which spans international commercial and business law. 

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