Do I have to pay tax when I sell my house?

Ask The Local: We have left Sweden and moved back to Ireland, selling our Swedish apartment. Since we won't be returning to live in Sweden, do we have to pay capital gains tax? John, County Galway, Ireland.

With Sweden’s housing market falling, paying tax on the profit you made on your apartment might feel like an increasingly distant dream for many.

Still, with prices having increased by an average of nearly 9 percent a year for every year between 1996 and 2007, lots of people are still left with a hefty profit when they sell, despite the recent price falls.

When you sell a house or apartment (bostadsrätt) in Sweden you are liable to pay capital gains tax of 22 percent on any profit you make. However, you can postpone payment of this tax indefinitely as long as you use the money to buy another home in Sweden. If you sell that home and buy another home, you can continue to postpone paying capital gains tax on amounts up to 1.6 million kronor. If, however, you sell without buying a new home (for instance if you rent a home instead), you will have to pay the tax you owe.

In order to qualify for this postponement, your new property must have been bought by the end of the tax year following the sale of your previous home and you must be registered as living in the new property by May 2nd the following year.

There have been two significant changes in the law this year: following protests that the rule hindered the free movement of labour, Sweden was recently forced to offer the same deal to people selling homes in Sweden and moving elsewhere in the EEA (the EU, plus Iceland, Liechtenstein and Norway).

This means that John will be able to postpone payment of capital gains tax, as long as he uses the proceeds of the sale of his Swedish apartment to buy a new home in Ireland.

But taking advantage of the postponement will require a bit of work from John. People who have moved to another country and taken advantage of this postponement are obliged to contact the Swedish Tax Authority before May 2nd every year to confirm that your situation has not changed.

They also have to inform the authority if they move again: in other words, the price of postponing the tax payment is a lifelong relationship with the Swedish tax authority. In order to be granted the right to postpone tax payment you have to provide the Swedish authorities with the title deeds for your property and evidence that you actually live in it.

However, buying a home abroad means you don’t have to pay ‘interest’ on the postponed tax. This ‘interest’ is technically a tax of 0.5 percent per year on the taxable capital. The government imposed this interest earlier this year on anyone postponing payment of capital gains tax. However, as Sweden doesn’t have the right to tax people not resident in Sweden, people in John’s position are not obliged to pay.

If you move from Sweden to a country outside the EEA you cannot postpone payment of capital gains tax on your Swedish home. To clarify: if you sell a Swedish home and move to, say, Australia, you are obliged to pay the full amount of capital gains tax and cannot make a postponement.

If you find you have to pay capital gains tax, you can reduce your liability by deducting certain costs. Among permitted deductions are recent significant improvements to the property (including repairs carried out by your tenants’ association if you live in a tenant-owned ‘bostadsrätt’ apartment), and certain other costs associated with selling your property.

For the increasing number of people who make a loss on selling their homes, the tax system provides some crumbs of comfort: fifty percent of any capital loss is tax deductible.

Properties in Sweden