Qualifying debts: what could be deducted from wealth? – based on the draft

Debt would enter the calculation of net wealth

Under Section 6(1)–(2), establishing the tax base would involve more than adding together asset values. Qualifying debts would first be deducted from the aggregate calculated value of taxable assets at the end of the reference year. Only the resulting amount exceeding HUF 1 billion would constitute the tax base. The deduction would therefore precede the threshold, rather than reduce tax already calculated.

This structure would apply to resident and non-resident individuals and corresponding wealth-management taxable entities, but with different debt conditions. The HUF 1 billion net threshold in Section 6 would not be the HUF 100 billion tax-base band in Section 9(1). The latter would concern taxation of the base already established after deductions and application of the threshold.

Legal basis and substantiation would operate together

For residents, Section 6(1) would recognise debts based on legislation, a final court judgment or a final administrative decision. The other specified category would be debt arising from a credit or loan agreement recorded in a prescribed documentary form. Consequently, describing an item as an economic liability would not automatically make it deductible under the proposed wording.

Alongside one of these legal bases, the debt would have to exist genuinely and be substantiated. These would be cumulative requirements: an appropriate decision or agreement would not replace evidence that the obligation remained outstanding. Equally, demonstrating its economic reality would not dispense with the legal basis required by Section 6(1), or the documentary form required for contractual borrowing.

The document and the reference date would require separate examination

For credit or loan agreements, Section 6(1)–(2) would require a public instrument or private instrument with full probative force. A foreign document could qualify if the law of its place of issuance gave it corresponding evidential force. The draft would thus refer to a foreign-law classification without setting out its detailed rules; those rules could not be reconstructed from the supplied text.

Assets and deductible debts would share the same temporal reference point. Under Sections 5 and 6, wealth held on the reference year’s final day would be matched against obligations burdening the taxpayer that day. An earlier contractual amount would therefore not automatically support an equal deduction: the genuinely outstanding and substantiated liability at the reference date would determine the amount recognised.

Non-residents would also need a direct asset connection

Section 6(2) would impose an additional connection for non-resident taxpayers. The debt would have to relate directly to acquiring, creating, maintaining or making a value-enhancing investment in a taxable asset. Appropriate documentation and proof of its existence would therefore be insufficient alone: deductibility would also depend on its economic purpose in relation to the particular taxable asset.

This restriction would operate alongside Section 4(2), which would limit non-residents’ taxable wealth to specified domestic property, associated rights and corporate interests. Section 6(1) would not impose the same direct-connection condition on residents. The distinction would therefore affect the scope of deductible liabilities, rather than merely the manner in which otherwise identical deductions would be substantiated.

Transparent organisations would pass through allocated debt

Under Section 7(6)–(7), assets of a tax-transparent association would be attributed to its members or other participants. Where several persons participated, allocation would follow the law governing the organisation’s operation. Equal allocation would apply if those rules did not establish the proportions. Each person’s share of organisational debt would be determined using the same allocation framework.

Attribution would not, however, create an independent and unconditional deduction. Section 7(7) would expressly require the debt otherwise to satisfy the draft’s deductibility conditions. An allocated obligation could consequently be treated as burdening the member, but substantiation, legal basis and any direct connection required by the applicable residence rule would still have to be examined.

Debt already reflected in business valuation could not recur

Section 13(1)–(2) would introduce a particular valuation approach for sole traders using entrepreneurial-income taxation. Net business assets would already reflect deductions for related debts genuinely outstanding and properly substantiated at year-end. Records, the reference-date inventory and supporting documents would collectively establish that amount, using data under the Personal Income Tax Act to which the draft refers.

Under Section 13(3), assets and debts recognised through that valuation could not enter the tax-base calculation again under another heading. A liability could not first reduce business value and then reduce overall wealth again. Section 13(4) would instead require asset-by-asset valuation for sole traders outside that taxation category and agricultural primary producers, without establishing a separate earnings value.

A specific exception and verifiable deduction information

Sections 23(8)–(10) would create a specific exception: an option obligor could recognise a prescribed negative market value or option value, departing from Section 6(1). The right would need to be enforceable at year-end and incapable of unilateral revocation. The latter valuation route would require additional return information, and the amount could not recur as another debt or reduce the underlying asset’s value.

Section 25(7)(d) would require the return to identify deducted debts’ legal bases and amounts, together with the relevant asset where direct connection was required. Subsection (8) would require supporting documents to be retained until the assessment limitation period expired. Section 1(3) would reinforce this through its general prohibition: the same factual basis could not support repeated tax-base reductions under different headings.

Frequently asked questions