The "three year rule" on property sales

[mmwenzler]

Hi all,

Can anyone explain the 3 year rule to me? Something about higher tax rates on the sale of property if sold within 3 years of purchase? What are the rates? Who is it paid to?

Any info would be very helpful.

Thanks, Mike

[lojalnost]

stops you the consumer making a fast buck! very clever, not easy making money in croatia. government is everywhere!

alas alas

I'm sure someone knows a better answer, try Peter Ellis on his website

[anthonyp]

If a property is held for more than three years, no capital gains tax is paid on the sale of the property.

EG if you buy a property today for EUR100,000 and sell it for EUR 120,000 in three years or later, you don't pay tax on the EUR20,000 profit.

If you sell it within three years, you would pay capital gains tax on the EUR20,000 at your marginal income tax level. See section 4.2 for personal income tax rates within the following link:
www.pu.mfin.hr/en/porezi/v_poreza.asp?id=b01d1#4.2_PERSONAL_INCOME_TAX_

[ianl]

But! If you are a UK tax payer (don't know how other countries work sorry) - I believe you will be liable for capital gains tax in the UK on that profit no matter when you sell. As far as I can tell, there seems to be an agreement between countries that you don't get a double-whammy on tax but Croatia gets first bite at that cherry and any you have paid to Croatia can be offset off what you owe to the UK tax authorities so it seems to me that you would end up paying the same amount in CGT whenever you sell the property. (I am no tax expert, check out the details with a good accountant before you do anything!).

The other thing is that the 3 years only starts being counted when the property is legally yours, ie bought through the company route or gained permission if buying through the private route. Since the private route permission seems to be taking at least 2 years that could be over 5 years before you are out of CGT in Croatia.

The one workable way around this (close your eyes and ears Gordon Brown!) is that in the UK you are not liable for capital gains tax on the sale of your primary home. So wait 3-5 years (to be out of Croatian CGT) - if you were going to sell your UK home anyway, sell it - no UK CGT payable. Declare your overseas home as your primary home. Sell it. Rent somewhere else until you have bought a property again with all your illicit proceeds.

[onetoten]

What if you are a UK resident with a Croat passport. A Croat buyer?

[talisman]

Hi, does anyone know what the CGT figures are based on? Say you buy a house using the private route, and then had to sell within the CGT time, would the tax be based on a)the original purchase price, b) the original purchase price plus all renovation/modernising costs, c) both a + b + the increase in value during the 5-year wait? Can you offset all the improvement costs against tax?

[nelson]

Does the three year rule apply to properties owned by the company route ?

[mark2]

Dear Nelson, I fear that the questions which you are asking now, should have been asked before purchasing your property.

[Carol]

Capital Gains tax (CGT) is not applicable to companies, only to individuals. So the "three year rule" does not apply to properties owned by the company route. As a rule of thumb CGT is charged at 35% (see AnthonyP's better explanation above). Companies pay profit tax at 20% instead with no time limit.
What you should be trying to figure out is what the taxes will be if you sell your company and house as one package.

[nelson]

Nice one Carol. Thanks for your constructive comments.

[nick2]

Selling your company with the house in it would mean a 100 % share transfer. Normally there is no tax on share transfers, but i know in Holland there are additional rules when selling all of the shares. I want to find out. Keep you posted.

[rijekafan]

quinne said:

Capital Gains tax (CGT) is not applicable to companies, only to individuals. So the "three year rule" does not apply to properties owned by the company route. As a rule of thumb CGT is charged at 35% (see AnthonyP's better explanation above). Companies pay profit tax at 20% instead with no time limit.
What you should be trying to figure out is what the taxes will be if you sell your company and house as one package.

Yay Carol!!! I was sure it was the case that companies did not pay CGT. I was just told by my awful lawyer that I would have to pay company tax and CGT. I am changing lawyers today.

[nikh]

forget about paying your lawyer for this information and get a bookeeper or accountant ot explain it.This is what they do not the lawyers!!!

[bribers]

Let's have some definitive answer on the 'three year rule'. One of the common misconceptions is that the three years kick in as soon as you buy the property privately. They don't. They start once you get your MFA/MoJ permission. But even here it is not clear and if anyone can point to the rule book and explain definitively which of the following is the start point to get the clock ticking, it would be useful.

Is it:

1. Three years from the dated letter from the ministry letter approving the ownership?

2. Is it three years from you paying the 5% tax (should be done within 28 days, based on a demand from the tax office, but I am aware of a permission through 12 months ago and still no tax demand).

3. Is it three years from being physically entered into the ownership books? Don't assume that just because you have permission to own the property, you are magically entered into the ownership books. You are not. It is the last thing the lawyer should do for you.

[Charles]

Ianl - problem in trying to get the better of GB (and I think we'd all like to do that!) is the round-trip costs involved. On your UK home you pay 1.5% to an agent to sell and then when you buy you pay solicitor's fees and stamp duty. You also have the opportunity cost as the market may have moved up, storage costs for your furniture (or removal costs backwards and forwards from rented accommodation to new house) plus a very probable mis-match on timing of the transactions as liquidity in Croatia is much lower than in the UK ie I think you have to stand to make a pretty hefty profit in Croatia to even begin to think about this method simply to avoid the 35% tax.

Also, can you have your main home overseas and still technically be resident in the UK ie how many days do you need to be abroad to claim an overseas home as your main home?