In general, Sweden is a high tax country that imposes high tax rates especially on employment income. But how does it work if one sells real estate located in Sweden? How high are the taxes, and are there any possibilities of deferment? What about real estate located outside of Sweden?
"Sweden has a tax claim on capital gains from selling real estate located outside of Sweden. This tax claim has been an unpleasant surprise for expats living in Sweden."
How high is the capital gains tax rate in Sweden?
Sweden's Capital Tax is generally levied at 30 %. However, there are some exceptions to this rule. In case of real estate property, that is held for an individual's private use (i.e. not bought as an investment), the applicable tax rate on capital gains is 22 %. In cases when real estate has been bought as an investment, the applicable tax and social security rate can reach 80 % (!).
4If you were to make a loss, selling real estate property, 50 % of the loss is deductible towards other kinds of capital income, such as dividend, interest and similar. If your overall capital "result" is a loss (deficit), tax on employment income will be credited with 30 % of the capital deficit, up to SEK 100 000.
When is the point of taxation?
According to Swedish tax law, the point of taxation of real estate capital gains is the moment when a binding agreement is signed by the buyer and seller. Therefore, an individual that is signing an agreement to sell his house on 23 December 2024, will be obligated to include this transaction in his tax return for 2024 (filed during spring of 2025), even though the actual title of the real estate property could be transferred to the buyer during 2025.
The Swedish Tax Agency are usually notified about all real estate transactions occuring in Sweden, meaning that some information will be included in the annual tax return form that every Swedish tax resident receives during the month of March. However, if a Swedish tax resident sells real estate property that is located outside of Sweden, one has to manually include the transaction in the tax return. In relation to real estate property located outside of Sweden, capital gains are subject to the same rules as if the property were situated in Sweden. Sometimes, tax treaties can prevent Sweden from taxing capital gains derived from selling real estate property outside of Sweden. This possibility could prove very beneficial, since many other countries exempt Capital Gains made from selling one's private home, under certain circumstances, such as having lived there for a minimum of x years.
How are capital gains calculated?
In Sweden, there are specific rules on how to calculate capital gains made from selling real estate property.
Initally, the cost for buying the real estate property is to be regarded when calculating a capital gain. Also, it is possible to consider costs for renovating and refurbishing the property in point. However - there are some limitations to this.
Genereally speaking, costs for rebuilding a house is deductible. However, if a person is merely renovating or maintenance a house, these costs are only deductible for five years. Also, costs for renovation or maintenance are only deductible to the extent that the cost is attributable to restoring the condition of the house. This means that a renovation that leads to a higher standard, for example changing the floor from a plastic one to a parquet floor, will imply that only the theoretical cost for replacing a plastic floor with a new plastic floor, will be granted as a deduction. The legal assessment of what is to be seen as renovation (only deductible for five years), or rebuilding (deductible without limits), is somewhat complicated, thanks to case law from the Swedish Supreme Adminstrative Court. Always consult a tax lawyer, in order to minimize the capital gains tax by ensuring that you can deduct as many costs as possible, while not taking any risk to be subject to tax penalties.
Are there Tax deferment possibilities?
Generally, it is possible to get a tax deferment, meaning that one is postponing the payment of taxes on a capital gain. This requires that the seller of the property acquires a new home. However, there are some other requirements that have to be fulfilled. For example, one has to have used the sold house as his main residence for at least one year. We always recommend to seek professional when preparing and filing a tax return, if one has sold real estate property during the income year in point.
Do I risk double taxation on real estate capital gains?
As mentioned above, Sweden also levies capital gains tax on its tax residents, also when selling real estate property situated outside of Sweden. The same rule apply as if the property was located in Sweden. This tax claim has been an unpleasant surprise for expats living in Sweden.
However, almost every state will tax capital gains derived from selling real estate property in that state. This means that it is rather likely that both Sweden, and the country where the real estate property is located, will have a tax claim on a capital gain. For these situations, one is to apply the tax treaty in force between Sweden and the country in point. It is essential to determine which of the two states, the selling individual will have his tax treaty residency in, which is a complicated legal assessment. Also, one should keep in mind that the provision of different tax treaties differs from one another.
Consequently, if you are a Swedish tax resident, that plans to, or have sold real estate property located outside of Sweden, you should seek professional tax advice when including the capital gain in your Swedish annual tax return. Contact us if you are in need of advice.