Conditions for tax exemption – period of ownership and period of occupancy
In order for a gain made on the sale of a residential property to be tax-free (and thereby for there to also be no entitlement to a deduction in the event of a loss), both of the following conditions must be met:
- the sale must take place or be agreed more than one year after the property was acquired (period of ownership), and
- the owner must have used the property as his own home for at least one of the past two years before the sale takes place (period of occupancy). The period of occupancy will normally only include occupancy while you are the owner.
Any gain will not be taxable if you have owned the property for more than 12 months and during your period of ownership you have used it as your own home for at least 12 of the 24 months leading up to the sale. Any loss will only be deductible if any gain would have been taxable.
Concerning period of ownership
The period of ownership is determined from the date on which the property was purchased. You will generally be considered the owner from the date on which you actually have the property at your disposal If you built the property yourself, the period of ownership will be determined from the date on which you began using the property or from the date on which the certificate of completion shows that it had been erected. It is the earlier of these two dates which applies. The period of ownership is determined up until the date of realisation or establishment of an agreement concerning realisation, whichever comes first. Depending on the circumstances, certain incomplete agreements which do not contain all the applicable conditions could interrupt the period of ownership.
If one of the spouses owned the property before the marriage was established, this will also be considered part of the period of ownership for the other spouse. If a property is purchased in a number of stages on different dates, the period of ownership is determined specifically for each purchase. Ownership periods are determined from date to date.
Concerning period of occupancy
Period of occupancy is determined from the date on which you move into the house/apartment and is terminated with effect from either the date of realisation or the date on which the property is vacated. The date of realisation or vacation of the property is also included in the calculation of period of occupancy. Period of occupancy is normally only included in the period during which you own the house/apartment. If there are a number of periods of occupancy within the two-year period, these will be aggregated.
You entered into an agreement to purchase a house on 15 June 2015 and you take over and move into it on 1 August of the same year. The following year, you decide you want to sell the property and enter into an agreement concerning the sale on 1 July 2016. The property is to be handed over on 1 August 2016. Because the period of occupancy and the period of ownership are determined from the date of occupation until the date of establishment of the agreement in this case, the requirements concerning these two periods are not met. The gain made on the sale will therefore be taxable. The gain must be entered in the tax return for the 2016 income year.
If one of the spouses used the property before the marriage was established, this will also be considered part of the period of occupancy for the other spouse. This will also apply if the first person to live in the property is no longer alive by the time the property is sold.
If a formerly joint property is sold after a separation or divorce, the spouse who moved out will be credited with the same period of occupancy as the spouse who continued to live in the property. This rule also applies to the break-down of relationships for former spouse-equivalent cohabiting partners who either have or have had joint children.
Period of occupancy when the property has not been in use
In some cases, you may be credited with a period of occupancy even if you have not occupied the property, e.g. if you have not used the property because of your work or that of your spouse, your health-related circumstances or other similar reasons. Such periods are considered to constitute a period of occupancy when:
- you have used the property as your permanent home and have to vacate it, or
- you can substantiate that you planned to use the property as your permanent home, but have been prevented from moving in.
This also applies if the property was let during this period, provided that you do not live in another property which you also own (exceptions apply if you own commuter accommodation). The rules concerning non-use apply correspondingly to commuter accommodation. Commuter accommodation is a dwelling which is not your permanent home, but which you live in because of your work. In order for the property to be considered commuter accommodation, you must fulfil the conditions for entitlement to a deduction for your additional expenses associated with staying away from home in the property concerned for work-related reasons.
A precondition for being credited with a period of occupancy is that you were not aware nor should have been aware of the hindrance to use at the time you purchased the property.
Examples of hindrances to use which can be considered a period of occupancy include voluntary or compulsory shift work, an obligation to live in a dwelling provided by your company, study at a school or university which is located away from your home and admission to an institution due to illness or age. However, a situation where the property has to be let because you cannot afford to live there will not be deemed a hindrance to use.
Full or partial tax-free gains from a sale in connection with the letting of residential property
If you have let part of the property, all or a proportion of the gain may be tax-free under the rules explained above in the event of the sale of detached houses, semi-detached houses and multi-unit housing.
Gains made on sales will be tax-free:
- when you have used half the property as your own home and the rest of it has been let for residential purposes.
Gains made on sales will be partially tax-free:
- when you have used less than half of the property as your own home (calculated according to rental value). The proportional part of the gain that is allocated to the owner's own residential part according to the rental value will be tax-free.
"At least half of the property" means that the rental value of the part you have used as your own home is equal to or higher than that of the part of the property that has been let. Thus, "at least half of the property" does not relate to the area of the part of the property that the seller has used themselves.
“Rental value” means the normal rental value for an apartment/part of a house on the free market for the purpose for which the let area is used.
When part of a residential property is used as a home office for business purposes
The tax exemption will then only apply to the proportional part of the gain which relates to the part that has been used as as your own home. The part of the gain that relates to the home office used for business purposes will then be taxable regardless of the period of ownership or residence. This will apply even if the taxpayer lives in more than half of the property, calculated according to rental value. If the owner uses part of the property for business purposes, period of residence will also not accrue for the part of the property that is being let. This will apply even if the letting is for residential purposes.
If the home office is used for paid employment, the taxpayer will also be considered to have resided in this part of the property.
Sale of shares in housing cooperatives
In the event of the sale of a share in a housing cooperative (housing associations and limited liability housing companies), the same rules apply as for the sale of any other housing and holiday property.
Sale of farmhouses on a farm
If the conditions for tax exemption under the rules concerning the realisation of an ordinary farm are not met, any gains made on the farmhouse and its naturally associated plot may still be tax-free under the rules concerning the realisation of housing and holiday property.
If the conditions for loss deductions under the rules regarding the realisation of farms are met, the proportion of the loss that relates to the farmhouse will also be deductible. This will apply even if the owner has lived in the farmhouse, so that the loss would not have been deductible under the rules concerning the realisation of housing and holiday property. If the conditions for a loss deduction under the rules regarding the realisation of ordinary farms are not met, the proportion of the loss that relates to the farmhouse may still be be deductible under the rules concerning the realisation of housing and holiday property.