In principle, gains from the sale of residential property are tax-exempt when the requirements regarding ownership period and residence period in Section 9-3, second paragraph, of the Tax Act are met.

However, there are exceptions that may result in the seller having to pay tax.

This can happen when large properties are sold or when they are sold to residential developers who are actually buying the land.

Tax on the sale of large properties

In cases where the property is large, the situation may arise where part of the sale is tax-free, while the rest is subject to tax.

This is achieved by making the dwelling itself and a naturally defined area of land surrounding it (often referred to as a "naturally rounded plot") tax-free, while the rest of the plot is taxed in accordance with the rules for plot sales in Section 9-3, eighth paragraph.

Sales to developers

For normal properties, such a sale may be tax-free if the ownership and residence requirements are met.

For larger properties or cases where the price is significantly higher than the estimated market value, there is a high risk that the entire gain will be taxable, as this is defined as a land sale under Section 9-3, eighth paragraph.

Case law shows that the entire sale price for both the house and the land is taxed as a land sale. This applies in particular where the sale takes place in an area where there is a high demand for land development.

In such sales, the Tax Administration assesses whether:

• the most likely future use of the property is residential
• the purchase price is higher than what an ordinary home buyer would have paid,
• it is unlikely that the buyer will continue to use the property in its current condition.

What should the seller do?

If you are contacted by a developer, you should try to secure as high a price as possible so that you are left with the same net amount after tax.

One solution could be to divide the sales price into:

• a tax-free portion for the home and some land
• a taxable gain for the remainder of the plot

What are the tax risks?

If a regular buyer is willing to pay NOK 12 million, which will be tax-free, but sells to a developer for NOK 15 million, there is a risk that the entire profit will be taxed at 22 percent.