Who would pay the proposed tax on luxury housing

Deputies propose introducing a luxury tax. In particular, they want it to cover real estate worth 1 billion roubles or more owned by individuals.

In early April a bill was introduced in the State Duma that would introduce a special tax on objects of luxury: expensive cars, yachts, aircraft and real estate. The drafters plan for the law to take effect as early as 1 January 2024.

We look at which real estate the new law could cover, and at what rates the tax would have to be paid.

The luxury tax: who pays, how much, and for what

The luxury tax referred to in the bill is not a property tax and not a transport tax. It is an additional tax, to be charged on top of the taxes that already exist, Sergei Mironov, leader of the party A Just Russia - For Truth, told RBC Real Estate. He and other deputies from the party are the authors of the document.

In the view of the authors of the bill, the luxury tax should be paid by the owners of expensive real estate, yachts, aircraft, helicopters and cars. The maximum rate is 4% of their value, Sergei Mironov added.

Under the bill, the following are proposed as objects of taxation:

• residential houses, parts of a residential house, flats and parts of flats located in Russia and worth 1 billion roubles or more;
• dachas and other residential buildings, premises and structures located in Russia and worth 1 billion roubles or more, together with the land plots on which those properties stand, dacha and garden land plots, and land plots (and shares in them) allocated for individual housing construction;
• objects of unfinished housing construction located in Russia and worth 1 billion roubles or more, together with the land plots, once the three-year construction period has expired;
• cars purchased in Russia, or first registered in the prescribed manner in the name of a new owner, worth 20 million roubles or more;
• passenger sea, river and air vessels purchased in Russia, or first registered in the prescribed manner in the name of a new owner: aircraft, helicopters, motor ships, yachts, sailing vessels and boats worth 50 million roubles or more;
• Taxpayers in respect of objects of luxury are organisations, individual entrepreneurs and individuals who own the property. The exceptions are disabled veterans of the Great Patriotic War and disabled combat veterans, Heroes of the Soviet Union, Heroes of Russia, full cavaliers of the Order of Glory, laureates of state prizes and Nobel laureates.

Tax rates for real estate will, depending on value, range from 0.3% to 1.2% of the market value of the object of taxation. For transport the rate is proposed at 1% to 4%. Tax on real estate would be payable every year, and tax on means of transport (cars, yachts and aircraft) only once, when the right of ownership is registered.

How much housing is worth more than 1 billion roubles

On the calculations of experts polled by RBC Real Estate, the Moscow region market has several dozen residential properties (flats, houses and apart-units) worth 1 billion roubles or more. NF Group analysts estimate that, as of the first quarter of 2024, the Moscow region market had about 50 flats and apart-units worth more than 1 billion roubles.

"They account for 2% of the supply of high-budget property. As a rule these are exclusive large lots (penthouses, villas and mansions), some of which are also sold in foreign currency," said Andrey Solovyov, a partner at NF Group. Among the projects in which property in that price range is offered are Lavrushinsky, Obydensky No. 1, Ilyinka 3/8, Chistye Prudy, Kamerger and the Rossiya mixed-use complex, the expert said. As for demand, the share of such deals is minimal and, for the first quarter of 2024, came to less than 1%. Properties worth about 5 billion roubles are genuinely isolated offerings, and they are usually sold in the form of closed sales, Andrey Solovyov added.

On a preliminary estimate by Consul Group, the Moscow market has no more than a couple of dozen residential properties worth 1 billion roubles or more.

According to CIAN data as at 19 April, about 100 flats priced above 1 billion roubles are now on sale in Moscow (possible duplicates not counted). The Moscow Region has more than 230 houses in that price range (possible duplicates not counted). "It is not a given that all these properties would fall under the bill, because a cadastral valuation of their value will be carried out," said Anastasia Eliseeva, a partner at the law firm Mokrov and Partners. At the rates proposed, the tax on a house worth 1 billion roubles would be 3 million roubles. "From that point of view, this is additional revenue for the budget," the lawyer noted.

What this would lead to

Experts do not rule out that, if the law on a luxury tax is passed, the owners of expensive properties may split their assets. "The owners of such properties most likely have access to timely legal advice, which would allow them, even before the document takes effect, for example to divide a dwelling worth more than 1 billion roubles into two premises and gift the second part to a family member. That would be enough to fall outside the provisions of the new chapter," the managing partner at Consul Group suggests. The result, the expert went on, could be that Moscow is left with no properties worth more than 1 billion roubles. "Rosreestr would have to search for such properties by some set of characteristics and value them. Or look at transactions in residential properties worth 1 billion roubles or more that were registered at the full price," he believes.

The partner at the law firm Mokrov and Partners also allows for a situation in which the owners of such property try to avoid the luxury tax. "The valuation of the property may be challenged. For example, a state body values a house at 1 billion roubles, the owner does not agree with that valuation, and will challenge the value," the expert explained.

In its present form it is unlikely, Sergei Pivovarchik notes, that the bill introduced in the State Duma will get past the first reading at all, because it has not been sufficiently worked out. For example, the authors of the document propose a new base for calculating the luxury tax (something between cadastral value and market value), for which there is no method of calculation, and would place the power to calculate that base with Rosreestr. In addition, the luxury-tax rates proposed would in some cases come out lower than the rates already laid down in the Tax Code, the expert explained. For residential properties worth more than 300 million roubles, the rate of property tax for individuals in Moscow is now 2%.

The opinion of the relevant committee, on the budget and taxes, states that the bill is not accompanied by the opinion of the Government, which is required when changes to the tax system are in question. "The Cabinet must assess whether this tax is appropriate. Because it affects the budget itself, the Constitution requires an opinion from the Government," Anastasia Eliseeva added.

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