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This year's tax commission has presented its report, and one of the central themes concerning many is tax on residential and holiday properties. The commission is not proposing to reintroduce benefit taxation on owner-occupied housing or to change the rules for rental income, but it does make specific recommendations regarding capital gains tax on sales which will have significant implications for many home and holiday home owners.
Capital gains tax on the sale of a primary residence – tightened requirements
Today, profit from the sale of one's own home is tax-free if the owner has owned the home for more than one year and lived there for at least one of the last two years before the sale.
The Commission points out that these rules allow for tax-motivated adjustments. A taxpayer who owns two homes can today avoid capital gains tax on both by moving into the other home in the final year before sale. The Commission believes this is an opportunity for evasion that should be closed.
Commission recommendations for primary residence
- Increase the requirement for residency and ownership periods, for example to three years
- Potentially introduce proportional taxation for periods the owner has not actually resided in the property
- Consideration to revoke the established practice that allows commuters to accrue residence time in two homes simultaneously – which, if so, would result in the gain from the sale of a commuter home becoming taxable.
- It is assumed that transitional rules will be introduced for those who already meet the current conditions for tax exemption.
Capital gains tax on the sale of holiday homes – exemption proposed to be removed
This is the commission's most comprehensive recommendation, and has also been recommended by tax committees previously. Today, gains from the sale of one's own holiday home are tax-free if the owner has owned and used the property for at least five out of the last eight years.
The Commission's majority recommends that this tax exemption be repealed in its entirety.
The consequence is that the gain from selling a holiday home will be fully taxable Under the main rule of the Tax Act, this corresponds to a 22 % tax on realised gains. On the other hand, any losses will be tax-deductible.
For many cabin owners who have experienced strong price growth on their holiday properties over many years, this could represent a significant tax bill if the proposal is adopted.
The proposals are currently recommendations from the commission. It is now up to the Storting (Parliament) to decide whether and when the changes will take effect. However, experience shows that tax changes can happen quickly, and that transitional rules are not always as favourable as one might wish. The timing of any sale can therefore have significant tax implications.
If the tax committee's proposal is adopted, it may be worthwhile to act before new rules come into effect. For many, the difference between selling today and selling after a rule change will amount to significant sums, depending on any transitional rules.
We recommend that everyone who owns a holiday home or secondary residence, particularly where the property has a high latent gain, make a concrete assessment of their situation now. Our team has extensive experience in tax advice related to property transactions and can help you to:
- Calculate the potential tax exposure on sale under current and proposed rules
- Assess whether the current time is favourable for carrying out sales.
- Planning a potential sale in a tax-optimal way
If the rules are introduced as proposed, it will also become more important than before to be able to document any improvements made to the property. Costs for improvements can be added to the acquisition cost, thereby reducing the taxable gain upon sale.
Get in touch with us for a no-obligation consultation. Our lawyers have extensive and proven experience assisting with tax-related issues.
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