Calculating the period of ownership for leaseholds in connection with the sale of housing/holiday homes

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As a general rule, any gain on the sale of housing/holiday property will be taxable and any loss will be deductible.

Gains made on the sale of housing are tax-free if the owner has owned the property for more than one year and used it as their own home for at least one of the two years prior to the sale; see Section 9-3(2) of the Taxation Act. In the case of the sale of a holiday home, the gain will be tax-free if the owner has owned the property for more than five years and used it as a holiday home in at least five of the last eight years prior to the sale; see Section 9-3(4) of the Taxation Act.

Losses will only be deductible when the gain would have been taxable; see Section 9-4(1) of the Taxation Act.

Calculating the period of ownership of leasehold plots

Under the tax rules, the lessee is considered to be the owner of the plot when the leasehold contract has a duration in excess of 99 years (also known as a perpetual lease). The leasehold period is also considered as the period of ownership for the plot from the date on which the lessee gains an unconditional right to extend the leasehold in accordance with the law or a leasehold agreement. The Assessment ABC for, item 4, states that leasehold agreements concerning the leasing of plots for housing/holiday homes are always considered to be perpetual; see Section 33 of the Ground Lease Act.

Section 33 of Act No. 106 on ground lease (the Ground Lease Act) was amended with effect from 1 November 2004. The provision gives the lessee of a plot for an apartment/house or holiday home an unconditional right to extension of the leasehold subject to the same conditions as before. This applies to both new and older leasehold agreements. This means that with effect from 1 November 2004 the leasehold period for plots for residential and holiday use will always be considered as the period of ownership.

Sale of cabins with redeemed leasehold land - example:

The lessee of a plot (T) who had been using his cabin as a holiday home since 2003 redeemed the leasehold plot in 2009. T enters into a sales agreement on 5 November 2009. With effect from 1 November 2004, the leasehold period is deemed equal to the period of ownership for the plot. Any gain made on the sale of the property, including the plot, will be exempt from taxation in accordance with Section 9-3 fourth paragraph of the Taxation Act.

If T had entered into the sales agreement before 1 November 2009, the requirement concerning the period of ownership for the redeemed plot would not have been met. The part of the gain that is linked to the plot would therefore have been taxable.

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