What the Ministry of Finance proposes to change
The Ministry of Finance proposed introducing a progressive tax on personal income. The tax rate will increase from the current 13% to 15% if the profit from the sale of real estate is more than 2.4 million rubles. The increased tax will not have to be paid on the entire amount, but only on the difference between the purchase and sale. The bill submitted to the State Duma states that sellers who have owned real estate for three or five years (depending on the situation) are still exempt from tax.
In order to understand what and how will change for real estate sellers, we suggest reminding you how such a tax works now. If a citizen owns an apartment, apartments, land plot or private house for more than five years, then he is not subject to this tax and can sell real estate without making any payments to the state.
In this case, the seller is exempt from paying tax if he owns the property for three years, but under certain conditions. Relaxations are provided for persons who inherited real estate, under a gift agreement from a close relative, as a result of privatization, under an agreement for the transfer of property in connection with the maintenance of lifelong dependency. In addition, citizens for whom the home being sold is their only home, and people who have two or more children under 18 and use the proceeds to purchase new, better quality housing, can count on this tax benefit. Then the income from the sale of the previous apartment is not taxed and it does not matter how many years the seller owned the previous apartment.
If a citizen does not fall into these categories, then when submitting an annual 3-NDFL declaration he will need to pay income tax . That is, the amount you earned from selling real estate.
For example, in 2021, 1 square meter in a new Moscow building cost an average of 271 thousand rubles. Now the average cost of a “square” is 384 thousand rubles. Three years ago, a buyer could purchase a one-room apartment with an area of 40 sq.m. for 10 million 840 thousand rubles. Now he can sell a similar apartment for 15 million 360 thousand (although formally this is already a resale). It turns out that his benefit amounted to 4 million 520 thousand rubles. And it is from this amount that you will need to pay a tax of 13%, which will amount to 587,600 rubles.
What does the Ministry of Finance propose to change? A person is still exempt from paying this tax if he owns the property for more than five years (more than three years for the above-listed beneficiaries). No changes are planned here.
Let's return to the previous example, in which the final tax from the proposed seller of the apartment was 587,600 rubles. Now from his profit, which is 4.52 million rubles, the tax will be as follows: from the amount of 2.4 million, which is indicated in the bill as the base, 312 thousand rubles will be deducted at a rate of 13% and from the remaining at this transaction amounted to 2.12 million rubles. 318 thousand rubles will be deducted. at a rate of 15%. The total tax will be 630 thousand rubles. (312 thousand + 318 thousand), which is 43 thousand rubles. more than previous calculations.
Many experts are now saying that this initiative will affect few people and if it does, it will be insignificant. We can partly agree with this. This really will not affect those who have owned their property for a long time and plan to improve their living conditions.
However, innovations will affect the interests of private investors. Previously, it was a common practice among them: to buy an object at the excavation stage and, after its construction, resell it at a much higher price. For example, in 2019-2020, a citizen buys a one-room apartment with an area of 36-40 square meters in a residential area of Moscow for 7 million rubles. In 2022-23, the capital’s real estate market is changing radically and its completed apartment already costs 12 million rubles. He is not eligible for the term or preferential terms of ownership of 3 years — he needs to pay tax on 5 million rubles. Now, if the proposals of the Ministry of Finance are approved in the State Duma, it will need to pay a larger amount of tax: from the amount of 2.4 million rubles. at a rate of 13% and from the amount of 2.6 million rubles. at a rate of 15%. That is, 708 thousand rubles. at the proposal of the Ministry of Finance versus 650 thousand under current legislation.
Using the same scheme, private investors often purchased apartments that fell under the renovation program. When an apartment was purchased in a five-story building, and then a new building received from the Renovation Fund was sold. If the owner owned the property for less than 5/3 years, he also had to pay personal income tax.
It is no secret that investors often avoided taxation by persuading the buyer to indicate a reduced price in the contract. If an apartment was bought for 7 million and sold two years later for 12 million, then the sellers asked to write the first number in the contract.
This scheme is dangerous for both the buyer and the seller. For sellers using such a scheme for non-payment of personal income tax, there are risks of collecting a fine in the amount of 20% of the amount of unpaid tax (clause 1 of Article 122 of the Tax Code of the Russian Federation). This is the best case scenario. At worst, they face Article 198 of the Criminal Code of the Russian Federation (Evasion of an individual from paying taxes, fees and (or) an individual paying insurance premiums from paying insurance premiums). This may result in a large fine and imprisonment, depending on the severity of the offense.
For the buyer, such a transaction is also dangerous. Firstly, for some reason the transaction may be declared invalid. The seller himself may challenge the transaction, or the property may be used as a bankruptcy estate if the seller is going through bankruptcy proceedings or has significant debts. In this case, the buyer who agreed to the illegal scheme will receive back the amount specified in the contract, and not the amount he actually paid. It is extremely unlikely that the court will side with him, since the buyer himself was a participant in a tax crime.
Another risk for the buyer arises if for some reason he needs to resell the apartment to third parties. If the period of ownership does not exempt him from paying personal income tax, then he will have to pay the tax or try to persuade the next buyer to “lower” the price in the contract.
The Ministry of Finance’s proposals to increase personal income tax when selling real estate will affect a small category of citizens . And I must admit, the impact will not be very significant. The Ministry, faced with the task of increasing budget capacity, is trying to do this without shock therapy for the population.