On July 1, 2011, the Cabinet issued a press release announcing a reduction of the transfer tax owed on the purchase of residential property from 6% to 2%. Purpose of this measure is to build confidence in and unlock the housing market. A Decree by the Deputy Minister of Finance containing further details was published on the same day.
Application
The Decree states that the reduction will be effective until July 1, 2012. The measure will be included in the 2012 Tax Plan, and if the bill is adopted, the reduction will become effective as of January 1, 2012. However, the Cabinet considers it undesirable that taxpayers postpone the acquisition of residential property until that date. The Deputy Minister has therefore, in anticipation of the amendment of the law, approved that a transfer tax rate of 2% is levied on the acquisition of residential property on or after June 15, 2011. The legal transfer date of the property will be decisive.
What is the definition of the term residential property?
The measure will only apply to residential property. For this purpose, the term residential property is defined as real estate that is, by its nature, intended for the housing of private individuals, irrespective of whether the purchaser intends to occupy the residence himself or let the house to a private individual. Aside from the plot of land on which a residence has been erected and the garden, a residential property also encompasses appurtenances such as garages, sheds, conservatories, extensions, add-ons, fences etc. located on the same plot of land as the house. A garage in the same building complex as the house is also considered to be part of the residential property. Temporary vacancy of the house does not alter the residential nature of the real estate.
Real estate intended not only for residential purposes is subject to the basic assumption that the rate of 2% is only levied on the value of the part intended as private residence. If real estate is almost completely (90% or more) intended for residential purposes, the tax rate of 2% may be levied on the full acquisition of such real estate.
The Decree lists the following real estate that definitely does not qualify as residential property:
· industrial and business properties;
· individual garages
· hotels and/or boarding houses;
· refugee centers;
· real estate intended for use as residential care home, nursing home or hospital;
· boarding schools; and
· land destined for residential development.
Shares in real estate entities
In the case of the acquisition of shares in real estate entities that own residential property that qualifies for this measure, the tax rate of 2% may only be levied on the value that corresponds with such residential property.
Budgetary covering measures
In a separate letter to the Lower House, Minister De Jager of Finance and Deputy Minister Weekers of Finance outlined the proposed financial cover for the reduction of the transfer tax. In view of the purpose of the measure, the Cabinet will leave the mortgage interest deduction untouched. Aside from using part of the income from the tax base-broadening measures as outlined in the Tax Agenda (please refer to our earlier memorandums on this subject), the Cabinet intends to achieve the necessary financial cover by:
· introducing a bank tax
· repairing the 'Bosal Gap' (in short: participation interest deductible, participation benefits tax exempt);
· ending the contributions to salary savings plans as per January 1, 2012;
· using the reserved proceeds of the insurance premium tax increased earlier.