2% real estate transfer tax applies to DIY plots

This concerns the appeal in cassation lodged by the State Secretary for Finance against the opinion of Court of Appeal of The Hague that the 2% rate of real estate transfer tax applied to the acquisition of a so-called DIY plot (‘kluskavel‘), an apartment right in a former office building that was transformed into homes¹. Prior to the acquisition, the demolition on the relevant floor of the building had just been completed and the contractor had started replacing window frames. Further construction work still had to take place.

Question of law

The dispute is whether the 2% rate for dwellings was applicable or not.

Assessment by the AG

Advocate General Ettema has concluded that the appeal in cassation is unfounded². Although the test that the Court of Appeal has applied is incorrect, according to the Advocate General, or that the opinion of the Court of Appeal is incomprehensible, in the end the Advocate General is of the opinion that the 2% rate should be applicable.

According to the Advocate General, a strict and a loose interpretation is possible to determine, in the event of transformations, when a property switches from the 6% rate to the 2% rate. A strict interpretation would mean that the 2% rate could only apply once the transformation work has been completed. The Advocate General prefers a loose interpretation: in the case of a building which is to be allocated in its entirety to a dwelling or to something else, or to both, but which, at the time of acquisition, does not have the architectural characteristics of either of them, the rules of public law determine whether the building is by its nature intended for habitation. This loose interpretation would lead to the conclusion, in this case, that the 2% rate applies.

Practical implications

Following the judgments of the Supreme Court in February 2017, it was clear what test had to be carried out to determine whether a property qualified as a dwelling for the purposes of applying the transfer tax rate. It is unclear, however, when a property will change from the 6% rate to the 2% rate when undergoing a transformation from non-residential to residential. Although the Advocate General expressed a preference for a loose interpretation, she leaves open the possibility of a strict interpretation. The Supreme Court will ultimately have to make the choice.

^{1 Court of Appeal of The Hague, 21 September 2018, ECLI:NL:GHDHA:2018:3224.
2 Advocate General Ettema 27 July 2019, ECLI:NL:PHR:2019:791.}