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Hungarian Government extends reduced VAT rate for new homes

Finance Minister Mihály Varga announced on 4 May 2024 that the Government will prolong the preferential VAT regime for new homes for an additional two years. This means that until 31 December 2026, newly built apartments (up to 150 square metres) and family houses (up to 300 square metres) will be subject to a VAT rate of 5% (instead of a general rate of 27%). Furthermore, in practice, the reduced rate can be applied up to the end of 2030 for properties for which the building permit or building notification has been issued by the end of 2026.

The reduced rate for new homes was reintroduced in 2021 originally for a 2-year period, that has been continuously extended, now by the end of 2026. The conjunctive pre-conditions to qualify for the preferential tax treatment are basically the same since 2021, as follows:

(1)        the building shall be considered as ‘residential property’ under the definition of the Hungarian VAT Act, i.e. any building, which is not necessary for residential purposes is not construed as residential property, even if built adjoining the residential building, such as garages, workshops, shops and farm buildings;

(2)        the building shall be considered as newly built under the definition of the Hungarian VAT Act, i.e. sold before first occupation (or within 2 years thereof in some cases);

(3)        the transaction (sale of the building or pre-payment, as applicable) takes place within the preferential period by 2026 (eventually by 2030 under the transitional provisions).

By application of the reduced rate, the Government’s aim is to leave HUF 200 billion a year for the people, while also providing significant support to the Hungarian construction industry, which accounts for 6% of the Hungarian economy and provides jobs for nearly 400,000 people, which is why the Government is paying special attention to supporting and developing the sector. According to the announcement, the preferential tax treatment was also supported by professional organisations (ÉVOSZ and MKIK) and the budget provides the necessary resources for the tax cut and the measure does not endanger the deficit target, the finance minister added in a comment to his post.