The residential building is located on a rented lot with an option to buy If a shareholder buys their designated share of the land, does that shareholder have to complete a transfer tax return and pay transfer tax?

When a residential building of a housing company is located on a rented lot with an option to buy, shareholders can choose from 2 options:

The shareholder can: 

• Pay monthly rent for the land lot to the housing company
• Pay off the designated share of the land (=redemption)

After payment, the housing company can purchase that share from the plot owner.  After the shareholder has redeemed the part of the plot this way, the shareholder no longer pays rent.

The date when payment for the plot can be sent is the date of completion or specific later dates to be announced by the building management. In some housing companies, the shareholder is only entitled to partial redemption of the plot’s designated share.

There is no need for the shareholder to complete a transfer tax return or pay transfer tax

To pay off the plot share is voluntary. It is not part of the purchase contract of housing-company shares to send the payment at all. In addition, usually the seller of the shares and the owner of the plot are not the same person or company. Accordingly, any payment an individual shareholder may make in order to pay for the plot will go to the plot owner, not to the seller.

As a result, when a shareholder carries out a redemption of the designated part of the plot, it is not a transaction that would require the filing and payment of transfer tax. The time when the redemption is carried out is not important, i.e. it may be when construction is completed or at a later date.

Transfer tax accounted and paid for by the housing company

If the housing company purchases a designated share of the lot where its residential building is located, it must file a transfer tax return to the Tax Administration and pay the transfer tax accordingly. In addition, the housing company must apply to the National Land Survey for registration of title.

Typically, the housing company presents an invoice to the shareholders containing this transfer tax as added to the price of the shareholders’ land. From the shareholder’s perspective, when he or she has paid the housing company’s invoice, it does not mean that the shareholder has paid transfer tax. Instead, the shareholder is only treated as having paid the amount necessary for redeeming the land.