Tax on the sale of plots of land

In principle, any gain made on the sale or other realisation of a plot of land is liable to tax. For the income year 2016, the tax rate is 25 percent (24 percent for the income year 2017) of the gain made on the sale. Losses on sales are only deductible in cases where any gain would have been taxable.

What is a plot of land?

The following are always considered plots of land:

  • undeveloped land which is suitable for use as a building plot for housing, holiday homes, etc. Fully or partly developed land is also considered to be a plot of land if the land is suitable for the construction of housing, holiday homes, etc. and it appears likely that the fee will be strongly affected by such use of the land.  An example of this would be a situation where development of the land has little value (typically ripe for demolition), so that in reality the purchase relates to the land and not the development.

What is considered the sale of a plot of land?

A plot is deemed to have been sold upon cessation of ownership or transfer of ownership to another party. For example, this would be the case in the event of a:

  • voluntary sale, including the division of a large plot of land into a number of smaller plots, 
  • compulsory sale, e.g. expropriation, 
  • sale at a compulsory auction exchange of the plot, 
  • sale at a reduced price, e.g. as an advance on inheritance or partial gift, 
  • establishment of perpetual (ever-lasting) rights (i.e. longer than 99 years) when the rights are established in return for a lump sum.

Plots are not considered to have been sold in the event of, for example:

  • transfer as a gift or advance on inheritance, 
  • transfer through inheritance in the event of death, 
  • division of a decedent estate between heirs, 
  • transfer between spouses, including in the event of the dissolution of jointly owned property following separation or divorce, 
  • land consolidation in accordance with the Act on land division of 21 December 1979, 
  • establishment of temporary rights, including leasing, when the lease agreement is valid for more than 99 years.

Please note that a proportion of the fee for the sale of a house/apartment or holiday home which is exempt from any tax obligation may still be taxable under the rules concerning tax obligation upon the sale of a plot of land. This will for example be the case in the event of the sale of a developed property where the plot is larger than would normally be considered to constitute a naturally associated plot for the house/apartment or holiday home.

What is a naturally associated plot?

What is a naturally associated plot must be determined in each case, where one takes into account, among other things, the settlement, accessibility, topography, the building's location on the plot, how the area is regulated in the municipality plan and what is normal size on sites in the area. If the property includes several buildings, the naturally associated plot must include the buildings that naturally constitute one unit, such as residential buildings and garages.

The property sale may also be liable to tax if the sales value of the property is substantially unaffected by the building(s), and if the building value is not so significant that it would be unnatural to regard the property as a plot. In case law, it has been considered, "Whether, based on an overall assessment of all circumstances, it must be regarded as an economically reasonable and predictable possibility that a buyer of the property at its price will keep the property substantially unchanged in terms of use and settlement "(Rt. 1977, p. 1264)