Transfer taxes on an exchange deal and after distribution of matrimonial assets

Transfer taxes must be paid not only when property has been acquired by purchase; other circumstances where transfer taxes must be paid include exchanges and dissolution of marriage.

You must pay transfer tax on contracts of exchange

If you agree with one or more counterparts that property will be exchanged, all the parties to such a contract must pay transfer tax. For example, if you hand over the shares of your flat in a housing company to someone and he or she gives you another housing-company flat in exchange, both you and that other person must file transfer tax returns and pay transfer taxes accordingly.

Transfer tax returns are to be submitted on the property that has been received. This general rule is also followed when the percentage rate of transfer tax is determined (for example, housing-company shares – 2%, houses i.e. real estate – 4%).  The amount of transfer tax that must be paid is calculated on the fair market value of the asset or property that you give to your counterpart as the “consideration”.

Example:  Seppo enters into an exchange contract: he gives away a real estate unit worth €100,000 and receives a housing-company flat, also worth €100,000. Seppo must complete a transfer tax return on the property received, in this case the shares in the housing company — the transfer tax is 2%. The base for the 2% is the fair market value of his former real estate unit, as follows: 2% × €100,000 = €2,000.

The amount of transfer tax is based on the fair market value of any assets handed over

Every party to the exchange deal must pay transfer tax on the fair market value of the asset/property they give away. Unless there is a contract of exchange that lists the values of all the items, the parties must provide a statement written up by a third party, such as a realtor or other party who can be considered independent, on the fair market values of the assets or property that are exchanged. The Tax Administration will perform a check to ensure that the “considerations”, i.e. the values listed in the contract, are in line with the actual fair market values as appropriate. This rule is followed also in cases where the contract of exchange contains values that deviate from market values.

If you pay a sum of money to your counterpart in addition to giving a physical asset to him or her, this must also be included in the consideration subject to transfer taxation. You have to pay transfer tax on the total, i.e. on the fair market value of the asset plus the money. The sum that the recipient gets is deducted from the value of the property that they transfer away.

Example: An exchange deal is made between Anja and Risto – Anja gives a housing-company flat to Risto; the flat’s debt-free price €100,000. Additionally, Anja pays Risto €50,000.

In exchange, Risto gives her a different housing-company flat — the debt-free price of that flat stands at €150,000.

Anja’s base for transfer taxation is €150,000 consisting of her flat (€100,000) and the sum of money (€50,000). This is the consideration she is paying out.

Risto’s base for his transfer tax is €100,000 (€150,000 minus the cash €50,000 from Anja).

Housing-company loan is part of the consideration

If there is a balance of a loan taken by the housing company, allocated to the specific shares held by a shareholder, it is treated as part of the consideration. This means that both parties to such an exchange must file and pay transfer tax with the total debt-free prices of the received shares (the debt-free price is the total price that contains the loan balance as appropriate).

Example: Arja enters into an exchange contract, and she gives a housing-company flat to the counterpart — the debt-free price of that flat stands at €100,000. These shares are free of any loan balances relating to the housing company. Kirsi is the counterpart in this exchange contract. She gives Arja a housing-company flat, and the debt-free price of that flat stands at €150,000. This flat has €50,000 recorded in the accounting of the housing company as a loan balance allocated to it. The €50,000 is included in the debt-free price.

Arja must pay transfer tax on the debt-free price of the shares she acquired, i.e. on the €150,000. Kirsi must pay transfer tax on the debt-free price of the shares she acquired, i.e. on the €100,000.

Exchanges with real estate

If you get a real estate unit as the result of an exchange, it is recommended that a written contract of exchange is made that contains the fair market values of the pieces of property being exchanged. Additionally, you must have a statement issued by the Tax Administration that confirms that the fair market value of the consideration is the same as the value set out by the written contract. You must show the statement to the National Land Survey when you ask for registration of the transfer of title.

You can submit a free-text request in MyTax or complete Form 6020e, Request for a statement for registration of title and other legal confirmation.

Make a check to see whether the conditions are fulfilled for an exemptible exchange of real estate units   

Distribution of matrimonial assets may not be subject to transfer taxes

The practice is to divide, i.e. distribute, the shared property owned by a married couple if the marriage ends due to divorce or death.

There are two stages to a distribution of matrimonial assets:

1. Division of assets for purposes of tax calculation

The first step is to prepare inventories of both spouses’ assets (minus any debts) subject to matrimonial property rights. 

2. Distribution

The second step is where all items of assets and debts are distributed to the two spouses. It may be that one spouse must make an adjusting payment to the other spouse. At this stage, the two spouses generally discuss the matter with each other in order to agree on any exchanges of the assets as necessary.

If the result of such a process is that you receive a real estate unit or securities – such as shares in a housing company – you must pay transfer tax on any part of the consideration that cannot be included in the assets under the distribution of matrimonial property. A frequently occurring situation is that one of the spouses has borrowed money from a bank after the divorce has been pending. The typical purpose of such a loan is to finance the purchase of the other spouse’s half of the married couple’s former home. Because the bank loan is received after divorce, it is not subjectible to the distribution of matrimonial property: transfer tax must be paid on the part of the home paid for with the borrowed money.

However, if no real estate units or securities change hands in the distribution process, no transfer taxation will be involved. Neither one of the former spouses must pay transfer tax. For example, if the other spouse wants to continue owning the part he or she already owns, it does not give rise to transfer taxation.

For more information and examples, see the detailed guidance (in Finnish and Swedish, link to Finnish) with information on division between spouses who have had a prenuptial agreement during their marriage.