The Constitutional Court on exchanging real estate and personal income tax

In Judgment No. 1-P of 15 January 2026, the Constitutional Court examined a situation in which the tax authority charged individuals personal income tax on an exchange under the rule for a sale: the cadastral value of the property transferred, multiplied by a coefficient of 0.7.

In the case, a citizen exchanged a plot with a cadastral value of RUB 2.9 million for a plot with a cadastral value of RUB 0.4 million (the contract stated RUB 500,000 for each, with no additional payment), and an additional tax assessment of personal income tax was made against her, calculated by multiplying the cadastral value of the plot she transferred by a coefficient of 0.7.

The Constitutional Court's position is that this approach cannot be applied automatically.

Why the Constitutional Court stressed that an exchange is not a sale. In an exchange between individuals there is often no money at all, and a tax "on the cadastral value of what was transferred" can mean a tax on a loss of property, not on a real economic gain.

How things stand now (until amendments are made to the Tax Code)

If you exchange real estate for personal purposes (with no business purpose):

• Personal income tax is not calculated as "0.7 of the cadastral value of the property transferred".

• Personal income tax arises only if the tax authority rebuts the equivalence of the exchange, that is, proves both of the following at the same time:

• there are no reasonable motives for the exchange (including household ones: a move, convenience, and the like);

• the cadastral value of the property received is substantially higher than the cadastral value of the property transferred.

If equivalence is rebutted, the tax is calculated on the difference: (cadastral value of the property received minus cadastral value of the property transferred) plus any cash payments or additional payments under the contract (if there were any).

From the moment this judgment of the Constitutional Court was handed down, individuals who exchange real estate where there is a noticeable difference in cadastral value should put together a "defence file" in advance: documents and explanations confirming that the exchange was reasonable (location, a move, being closer to the centre of one's vital interests, family and household reasons, convenience of using the property, and the like). In a number of cases it makes sense, and sometimes it is necessary, to add a report on market value, for example where the real worth of the properties is comparable but the cadastral valuation plainly does not reflect the market. With that set of arguments, a discussion with the tax authority is usually much simpler and cheaper than a later challenge to the assessments in court. Sergei Pivovarchik, managing partner of Consul Group, comments.

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