Tax on selling property in Estonia

When do you have to pay income tax on selling property?

Income tax is charged on the gain from the sale or exchange of any transferable item that has a monetary value, including an immovable (kinnisasi), a right of superficies and any other limited real right (TuMS § 15 lg 1) [1]. The gain from the disposal of property is expressly listed among the taxable income of a resident natural person (TuMS § 12 lg 1 p 3) [6].

A natural person is a resident if their place of residence is in Estonia or if they stay in Estonia for at least 183 days over 12 consecutive calendar months; a resident pays income tax on all income received both in Estonia and outside Estonia (TuMS § 6 lg 1) [7].

It is the gain that is taxed, not the whole sale price. If the sale price does not exceed the acquisition cost, there is no gain (TuMS § 37 lg 1) [2].

When is selling your home tax-free?

The gain from the disposal of an immovable, a housing association share or membership of a building association is not subject to income tax in, among others, the following cases (TuMS § 15 lg 5) [1]:

• an essential part of the immovable, or the object of the apartment ownership or apartment right of superficies, is a dwelling that the taxpayer used as their place of residence until the disposal (TuMS § 15 lg 5 p 1) [1];
• a summer house or garden house, as a movable or as an essential part of an immovable, has been owned by the taxpayer for more than two years and the plot does not exceed 0.25 hectares (TuMS § 15 lg 5 p 4) [1];
• the taxpayer used an apartment in a building owned by a housing or building association as their place of residence until the disposal (TuMS § 15 lg 5 p 7) [1].

Where the exemption is based on the use of the dwelling as a place of residence, it applies to no more than one disposal within two years (TuMS § 15 lg 6) [1]. If the immovable, building or apartment was used for other purposes at the same time as it was used as a residence, the exemption applies in proportion to the floor areas used as a residence and for other purposes (TuMS § 15 lg 6) [1].

The exemption requires the dwelling to have been your place of residence until the disposal (TuMS § 15 lg 5 p 1) [1]. If that condition is not met and no other ground in subsection 5 applies, the gain is taxed under the general rule (TuMS § 15 lg 1) [1].

How is the gain calculated, and what counts as the acquisition cost?

The gain or loss from the sale of property is the difference between the acquisition cost of the property sold and the sale price (TuMS § 37 lg 1) [2]. Documented expenses directly related to the sale or exchange of the property may be deducted from the gain (TuMS § 37 lg 1) [2].

The acquisition cost is all documented expenses incurred by the taxpayer to acquire the property and to improve and add to it, including brokerage fees and state fees paid (TuMS § 38 lg 1) [8]. So, besides the purchase price, the acquisition cost may include, for example, the costs of improvements, provided they are documented.

On an exchange of property, the gain is the difference between the acquisition cost of the property given in exchange and the market price of the property received (TuMS § 37 lg 1) [2].

The taxpayer must keep the documents relating to income and expenses (TuMS § 36 lg 2) [9]. According to the Supreme Court (Riigikohus), the acquisition cost of an immovable may also include costs incurred after the payment for its disposal was received (RK 3-3-1-63-14) [10].

How and when do you declare the gain and pay the tax?

Income is taken into account in the taxation period in which it was received (TuMS § 36 lg 1) [9]. A resident natural person files an income tax return with the Tax and Customs Board (Maksu- ja Tolliamet) for the income or gain received in the taxation period by 30 April of the following year; through the e-service, the return can be filed from 15 February of the following year (TuMS § 44 lg 1) [4].

A resident natural person who owes no additional income tax for the taxation period does not have to file a return, except, for example, a sole proprietor (TuMS § 44 lg 6 p 1, lg 6¹) [4].

The Tax and Customs Board calculates the additional tax payable (TuMS § 46 lg 1) [5], and it must be paid by 1 October of the calendar year following the taxation period (TuMS § 46 lg 3) [5].

If the return is pre-filled, you must check that the data in it are correct and, if they are wrong or incomplete, file a corrected and supplemented return (TuMS § 44 lg 1¹) [4].

What the law says

• „Kasu või kahju vara (§ 15 lõige 1) müügist on müüdud vara soetamismaksumuse ja müügihinna vahe.“ [2] (translation: the gain or loss from the sale of property is the difference between the acquisition cost of the property sold and the sale price; TuMS § 37 lg 1) – tax is calculated on the gain, not on the whole sale price.
• „Soetamismaksumus on kõik maksumaksja poolt vara omandamiseks ning selle parendamiseks ja täiendamiseks tehtud dokumentaalselt tõendatud kulud, sealhulgas makstud vahendustasud ja lõivud.“ [8] (translation: the acquisition cost is all documented expenses incurred by the taxpayer to acquire the property and to improve and add to it, including brokerage fees and state fees paid; TuMS § 38 lg 1) – only documented costs count.
• „kinnisasja oluliseks osaks või korteriomandi või -hoonestusõiguse esemeks on eluruum, mida maksumaksja kuni võõrandamiseni kasutas oma elukohana“ [1] (translation: an essential part of the immovable, or the object of the apartment ownership or apartment right of superficies, is a dwelling that the taxpayer used as their place of residence until the disposal; TuMS § 15 lg 5 p 1) – selling your home is tax-free if you used it as your place of residence until the sale.
• „ei rakendata maksuvabastust rohkem kui ühe võõrandamise suhtes kahe aasta jooksul“ [1] (translation: the tax exemption does not apply to more than one disposal within two years; TuMS § 15 lg 6) – the residence exemption can be used for no more than one sale within two years.
• „Pärandina saadud vara soetamismaksumuseks loetakse üksnes pärija tehtud kulud.“ [8] (translation: the acquisition cost of inherited property is only the expenses incurred by the heir; TuMS § 38 lg 1¹) – for inherited property, the acquisition cost is the heir's own expenses.

What to do

1. Check whether the sale meets one of the exemption conditions, in particular whether the dwelling was your place of residence until the disposal (TuMS § 15 lg 5 p 1) [1] and whether you have already used the residence-based exemption in the last two years (TuMS § 15 lg 6) [1].
2. Collect the documents proving the costs of acquisition, improvement and additions and the brokerage fees and state fees paid (TuMS § 38 lg 1) [8], as well as the costs directly related to the sale (TuMS § 37 lg 1) [2].
3. Calculate the gain: sale price minus acquisition cost and the costs directly related to the sale (TuMS § 37 lg 1) [2].
4. Declare the gain in your income tax return by 30 April of the year following the year in which the sale money was received (TuMS § 36 lg 1; TuMS § 44 lg 1) [9] [4].
5. Pay the additional tax by 1 October of the calendar year following the taxation period (TuMS § 46 lg 3) [5].

Frequently asked questions

Is selling an inherited apartment tax-free?

The inheritance received is itself not subject to income tax (TuMS § 15 lg 4 p 1) [1], but the gain from selling inherited property is taxed under the general rule unless one of the exemptions in subsection 5 applies (TuMS § 15 lg 1) [1]. The acquisition cost of inherited property is only the expenses incurred by the heir (TuMS § 38 lg 1¹) [8]. According to the Supreme Court, the condition of using the dwelling as a residence is inseparably linked to the person and does not pass to the heir; the heir can use the exemption if they themselves lived in the dwelling before the disposal (RK 3-16-903/32) [11], i.e. used it as their place of residence until the disposal (TuMS § 15 lg 5 p 1) [1].

Is selling a summer house tax-free?

Yes, if the summer house or garden house, as a movable or as an essential part of an immovable, has been owned by you for more than two years and the plot does not exceed 0.25 hectares (TuMS § 15 lg 5 p 4) [1].

Is money the buyer pays directly towards my loan also taxed?

Yes. According to the Supreme Court, for taxation it does not matter how the gain from the sale is used, or whether the money reaches the seller directly or is paid to third parties to cover the seller's debts (RK 3-3-1-63-14) [10].

Does a non-resident have to pay tax on selling property in Estonia?

Yes. A non-resident's gain from the disposal of property is taxed if the immovable sold or exchanged is located in Estonia (TuMS § 29 lg 4 p 1) [12]. A non-resident files an income tax return for income from which income tax has not been withheld (TuMS § 44 lg 1) [4].

If the price is paid in instalments, is it all taxed in the year of sale?

A natural person's income is taken into account in the taxation period in which it was received (TuMS § 36 lg 1) [9]. Each instalment is therefore declared in the return for the year in which it was received (TuMS § 36 lg 1; TuMS § 44 lg 1) [9] [4].