Why is everyone so afraid of the cadastral tax? We explain the tax that real estate owners fear
The cadastral tax is regularly heard in the media – it is a tax that many apartment and house owners are afraid of. Many are of the opinion that such a real estate tax can destroy a citizen. However, there are also those who see only advantages in this. Why does the cadastral tax in Poland cause such extreme emotions?
The cadastral tax is very different from the real estate tax we know. Today, the owners of apartments and houses in Poland pay the amount of tax depending on the area of the property – the larger the area, the higher the tax. In the meantime if a cadastral tax were to be introduced in Poland, the amount of the fee would depend on the value of the property. This means that owners of more expensive premises would pay more. Contrary to the odds, this solution has its pros and cons.
The tax calculated on the value of real estate has been functioning for years in many European countries and not only (it is, for example, one of the oldest taxes in the USA). It can be found, for example, in countries such as:
- Czech Republic,
- Great Britain.
The amount of this tax is generally determined by local authorities and depends on many factors – countries use different solutions, for example they calculate the amount to be paid based on the value of the property itself, the value of the land under the property or based on the potential annual income the owner could make from renting out your apartment . Some countries, such as Germany, also have different tax rates in different regions. In general, however, the amount of cadastral tax in Europe varies from 0.1 percent to 3 percent of the property value. As a rule, the value of real estate is determined by professional appraisers. Many countries apply various tax incentives, thanks to which in practice less tax is paid.
Value tax (cadastral) is generally much higher than surface tax. For example, according to the rates of 2022, the owner of a 50-meter apartment worth PLN 500,000. About 218 PLN of real estate tax was paid per PLN. If a cadastral tax of 1% of the value was introduced, the same owner would pay PLN 5,000.
Proponents of this tax solution cite higher municipal revenues as the main advantage. As real estate owners pay more than real estate taxes, local governments have more money for investments in the area (building and repairing roads, expanding sewerage networks, municipal housing construction, etc.).
Other relevant benefits resulting from the introduction of the cadastral tax this one:
- limiting real estate speculation – it is no longer profitable for investors to buy many apartments, for example, in order to artificially raise rents;
- greater availability of apartments on the market – thanks to limited purchases for investments, there are more apartments on the market for people who buy M for their own needs;
- incentive to remove empty spaces – owners of unused buildings have a greater incentive to build or demolish them;
- increase in investment turnover in communes – communes can provide investors with more accurate information about the value of a certain plot of land and the buildings on it;
- increasing the safety of real estate transactions – the cadastral tax helps to solve the issue of real estate ownership, which makes life difficult for housing fraudsters;
- arranging urban space – local authorities have a greater incentive to reduce spatial chaos and promote sustainable urban development.
Social arguments are also important. According to the supporters of the cadastral tax, it leads to a fairer distribution of the tax burden – owners of more expensive real estate, that is, more affluent people, then pay higher amounts than less affluent ones.
The main argument of the opponents of the cadastral tax is that it is a much greater financial burden for citizens than the current surface tax. Today’s real estate tax amounts would increase significantly if it were calculated on the value of the real estate. This is why opponents of the cadastral tax often call it a “disaster tax”.
Other relevant disadvantages of land tax this one:
- rent increase – property owners have higher maintenance costs that they pass on to tenants;
- decrease in rental income – investments in rental apartments become less profitable;
- higher costs for municipalities in the initial phase – in order to introduce the cadastral tax, municipalities must first sort out the land and mortgage books and assess many properties, which costs money;
- discouraging the renovation of the property – renovation increases the value of the property, which can discourage the owner from carrying out the necessary works;
- increase in the price of real estate – the cadastral tax increases the cost of maintaining real estate, which can increase its price.
It is also worth mentioning possible fraud: apartment owners have an incentive to undervalue their property because they pay less. The state must therefore create appropriate legal solutions that will make it difficult. For example, in Ireland for the sale of an apartment at a price higher than 110 percent. The declared value of the property is subject to severe penalties, which discourages fraud.
Currently, there is no social support for the introduction of cadastral tax in Poland. The Government does not intend to introduce such a tax either. In this matter, there are no requirements from the European Union, which does not impose any tax solutions on the member states.
The Ministry of Finance has been regularly receiving questions related to work on cadastral tax for years. The answer is still the same: there are no plans to introduce such a tax. The last official position of the Ministry on this issue appeared on February 24, 2021:
– The Ministry of Finance does not carry out tasks that would result in defining the rules for real estate tax collection based on the value of real estate – the ministry explained at the time.
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