Abolition of the real estate acquisition tax – what has changed in practice?

The House of Commons has already abolished the property tax in 2020. The abolition of the property tax has therefore been facilitating the acquisition of own housing for several years. Thus, tax is not paid on the purchase, but other adjustments have come into practice – from lowering the limit for mortgage interest deduction to extending the time test for exemption of income from the sale of real estate. In addition, from 2025, the rules for real estate tax have changed (abolition of the 1.5 coefficient and wider powers for municipalities) and VAT on the sale of real estate is compulsory, especially on the first sale within two years of completion; after two years, the supply is generally exempt.

How the acquired property has been taxed so far

The tax was 4% of the purchase price of the property (with certain exceptions), was payable by the end of the third month following the month in which the entry in the land register was made, and was payable by the purchaser. It cost the state budget approximately CZK 13 billion a year.

The obligation to pay real estate acquisition tax has been part of the tax system since 1992, originally enshrined in Act No. 357/1992 Coll., on Inheritance Tax, Gift Tax and Real Estate Transfer Tax. However, in 2014, the aforementioned law was replaced, repealed and a tax on the acquisition of immovable property was established, which is also currently under discussion. Over the years, it has slightly changed its form or the rule for its payment has stabilized. Previously, the buyer and the seller could agree on who would pay it, but from 1 November 2016 it was legally the buyer’s responsibility.

The tax was paid for the property acquired, i.e. for:

• land, building or residential unit owned in the Czech Republic,
• an eligible building constructed in the territory of the Czech Republic,
• a share in immovable property under the two preceding points.

The real estate acquisition tax did not apply to:

• inherited and donated real estate,
• new constructions within 5 years from the date of approval, for their first owners,
• cooperative flats – even in the case of transfer to private ownership.

Property acquisition tax currently

The real estate acquisition tax has been abolished and the decisive date in this respect has become 31 March 2020. In the world of finance, this can be translated into the fact that as a buyer you can normally save tens to hundreds of thousands of crowns.

What you need to know about the abolition of the real estate acquisition tax

Real estate transfer tax repeal applies retroactively

You do not now pay real estate acquisition tax if you acquired the property in the period from 1 December 2019. The deposit at the Land Registry therefore took place in December 2019 or later, and the deadline for filing your tax return would have been 31 March 2020 (with a postponement to 18 August 2020 due to the covid-19 pandemic).

Property tax refund

You may be in a situation where, although you are exempt from taxation, you have already paid the tax. Fortunately, under the new law you are entitled to a full refund of your property tax, but beware – this does not happen automatically, you must apply for a refund from your local tax office.

Applying for a refund of property tax

The tax administration has already published a model application for a refund of overpaid real estate tax on its website. In any case, you should prepare the registration of the property at the Land Registry and preferably also a proof of payment of the tax. You will then have your money back within 30 days of submitting your application (if you have no other tax arrears).

You can submit your application electronically via DIS+/EPO or in paper form directly at the office. The office will then refund the overpayment if it has no other arrears.

you must tax “older” properties

If you do not meet the time limits (in other words, the entry into the Land Registry took place before December 2019), you follow the original scenario – you must declare the property for tax and then contribute an adequate amount to the state coffers. However, this has apparently already taken place.

Related changes in the Income Tax Act

Following the abolition of the real estate acquisition tax, there are further changes in the area of personal income tax. The first is a reduction in the amount of the mortgage interest deduction limit, and the second is an increase in the time test for the exemption of income from the sale of real estate.

Reduction of the interest deduction limit from CZK 300,000 to CZK 150,000

We are talking about the maximum amount that you, as a buyer within a household, can deduct from your income tax base for mortgages. For loans related to housing acquired from 1 January 2021, the reduced limit of CZK 150,000 applies; for older cases, it remains CZK 300,000.

The interest is deducted from the tax base as a so-called tax-free part and the amount depends on the interest rate and the number of years remaining on the home loan. Your specific tax saving is then 15% of the amount of interest paid. Looking at the thresholds discussed, at the current limit of CZK 300 000, your maximum saving comes to CZK 45 000 (300 000 × 0.15). If you can deduct CZK 150,000 , you will now save only CZK 22,500 (150,000 × 0.15). Of course, not everyone reaches these maximums.

When and how does the new rule work?

• It applies to mortgages concluded from 1 January 2021. However, the decisive date is the moment of acquisition of the housing need (entry into the Land Registry), not necessarily the date of conclusion of the contract.
• It covers the acquisition of a flat, house or land, but also maintenance, repairs and renovations (including flats under lease or other use), the acquisition of a membership share in a housing association, etc.
• The CZK 300,000 limit (including later refinancing) continues to apply to housing needs acquired before January 2021.

In general, you can only claim the mortgage interest deduction once a year in your tax return or annual tax settlement. You lose the right to claim it when you pay less in income tax for the year than the annual taxpayer’s allowance (currently CZK 24,840). These are also cases where you work for less than the minimum wage, work on the basis of a work performance agreement with remuneration of less than CZK 10,000 per month or are self-employed with low profits and your tax liability does not exceed CZK 24,840.

Extension of the time test from 5 to 10 years

Now we move to the seller’s side. The income from the sale of the property must, of course, be included in the tax return, based on income tax on the sale of the property at a rate of 15%. However, there are exceptions where you are exempt from the tax. One of these is meeting the so-called time test, i.e. the length of time you live in or own the property. For properties not used for your own living, the time test for exemption has been extended from 5 to 10 years for properties acquired from 1 January 2021. In practice, this means that if you sell such a property within 10 years of acquiring it, you must pay income tax on any gain.

What you need to consider under the extended time test

• It only applies from 1 January 2021. So for properties acquired before then, the five-year period remains.
• It applies to property that is not used for your own living (typically holiday homes, the flat where your parents live, commercial premises, land or property held as an investment).
• There is no change in the place of residence. The eventual sale of such property is exempt from personal income tax after two years. However, the condition is that the address of the permanent residence is required – otherwise the property also falls within the extended time test.

Buying and selling a property is a significant step, and not only in terms of tax obligations. It comes with other requirements and, of course, risks in the event of non-compliance. To make sure you have all the information after the purchase, we have written an e-book on the subject , “How to sell or buy a property without risk”. If you don’t dare to do the transaction yourself, take a look at our range of services. We are ready to help you at any time.

Summary