Overseas property values and the role of improvements – based on the draft

Before valuation: which assets would fall within scope?

Under Section 4(1), overseas property belonging to a resident individual or resident wealth-management taxpayer would enter the relevant asset pool. For non-residents, Section 4(2) would instead require the listed Hungarian connections: ownership of overseas property alone would not establish liability under that provision. The valuation rules in Section 16 would therefore not independently determine who would fall within the proposed tax.

Section 5 would focus on assets held on the final day of the reference year. Under Section 6(1), the property's calculated value would join the values of other relevant assets. Only the portion exceeding HUF 1 billion after deduction of documented debts with the required legal basis would constitute the tax base. That threshold would not apply separately to each overseas property or replace its valuation.

The starting value in the acquisition year

For an acquisition for consideration, Section 16(1) would begin with the consideration specified in a transfer agreement between independent persons. The purchase price would not invariably govern: if an authority in the property's country established a different value in acquisition-related tax or other official proceedings, that official value would determine the calculation. Contractual and official figures would therefore not be freely interchangeable alternatives.

For a gratuitous acquisition, the same subsection would use the authority's established value. In either situation, the acquisition cost of value-enhancing improvements completed before liability arose would be added. Applying Section 16(1) would consequently require consideration of the acquisition basis, available official valuation and timing of improvements together. If this route could not establish the value, the replacement rules in subsequent subsections would become relevant.

What would qualify as a value-enhancing improvement?

Under point 8 of Section 2, not every amount spent on property would increase its calculated value on this basis. Qualifying expenditure would need documentary support and would have to increase ordinary market value. The listed categories would include documented spending on extensions, alterations, modernisation and changes of use. The expenditure's label alone would not establish either its value-enhancing character or its substantiation.

Ordinary maintenance and repairs necessary for proper use would, however, fall outside that definition under point 8 of Section 2. The addition under Section 16 would therefore not track total upkeep expenditure. Significant renovation under point 19 of Section 2 would be a separate concept, involving costs reaching twenty per cent of transaction value. The draft would not make that threshold a general condition for value-enhancing improvements.

Annual adjustments and subsequent improvements

After the acquisition year, Section 16(2) would require a continuing valuation based on the previous year's calculated value. At the taxpayer's choice, that value would be adjusted by three per cent or by the change in a suitable official property-price index from the property's country. The index would need publication by its statistical office, central bank or another state body and applicability to the relevant property type.

Only after that adjustment would the documented acquisition cost of improvements completed between the previous and current liability dates be added. Section 16(2) would thus distinguish adjustment of the carried-forward value from new expenditure. The three-per-cent option would be a valuation factor, not a tax rate. Using a property-price index would require the specified official source rather than an unrestricted market estimate.

Replacement values and substantiated reductions

If acquisition and carry-forward rules could not establish the value, Section 16(3) would turn to an official overseas property value. This could be the tax, cadastral or other official value applicable on the year's final day, or the latest preceding value. Both its amount and legal basis would require adequate substantiation. If that route also failed, subsection (4) would require market value established under Section 19.

Section 16(5) would offer a separate departure where a valuation credibly demonstrated a year-end market value below the figure obtainable under subsection (2) or (3). A change in legal, technical or use condition, or in individual circumstances, would be required. A lower expert figure alone would not suffice, and the wording would not create unrestricted choice between every available valuation.

Foreign valuers and conversion into forints

Under Section 19(1)(c), an overseas property's valuer would need authorisation under the law of its location and independence from the taxpayer. For wealth-management taxpayers, independence from the additional listed participants would also be required. Section 19(4) and (7)–(9) would impose requirements concerning timing, methods and reasoning, including at least two methods for high-value property.

Under Section 11, foreign-currency amounts would be converted using the official MNB exchange rate published for the reference year's final day. Without a rate for that day, the latest preceding publication would govern; multiple same-day rates would require the last published rate. For an unlisted currency, the MNB's euro-denominated rate would provide the basis. Conversion would remain distinct from determining property value and improvement additions under Section 16.

Treaties and the subsequent tax calculation

An overseas location would not itself confer treaty exemption. Section 8(1) would permit a differing treaty provision only where the treaty contained wealth-tax rules. If it allowed an asset taxable in the other state to be considered when taxing remaining assets, subsection (2) would include its value. If the treaty did not permit that treatment, subsection (3) would exclude it.

Section 9(3) would attach a separate tax-reduction calculation to the former situation. Section 9(1) would apply one per cent to the tax base up to HUF 100 billion and one-and-a-half per cent above it. Section 25(7)–(8) would require disclosure of methods and material valuation data and retention of supporting records. Overseas-property valuation would therefore form a documented stage of assessment, rather than involve a separate property tax rate.

Frequently asked questions