Wealth tax above HUF 1 billion: who it would affect

The government has put the draft of the new wealth tax out for public consultation, which would impose a tax on net wealth above HUF 1 billion. Below, we look at who the rule would apply to, what would count towards taxable wealth, how liabilities would reduce the tax base, and which points could still change before the final text of the law.

A draft, not an enacted law

According to an 6 October news item on kormany.hu, public consultation on the wealth tax draft is under way. The text of the draft and its explanatory memorandum are also available on the government website.

This means it is still only a proposal for now. The comments received during the consultation, followed by parliamentary debate, could still alter the valuation rules and reliefs, so the points below refer to the draft as currently known.

Two tax rates: 1 and 1.5 per cent

According to the government’s information, the draft would prescribe a 1 per cent tax on net wealth above HUF 1 billion, and 1.5 per cent on the portion of the tax base above HUF 100 billion. The HUF 1 billion threshold would function as an exempt band, meaning the tax would apply to the portion above the limit rather than to total wealth.

A simplified illustrative example: if someone’s net wealth, calculated under the draft rules, were HUF 1.5 billion, the 1 per cent rate would apply to the HUF 500 million above the exempt first HUF 1 billion, resulting in HUF 5 million in tax. The actual amount would also be affected by the valuation of assets, deductible liabilities and any possible credits.

Net wealth: liabilities reduce the tax base

According to an EY analysis, the regulation would not tax separate individual assets but the taxpayer’s total net wealth reduced by verified liabilities. This is an important difference compared with, for example, a property tax, where payment is typically due on each specific asset.

In practice, this means that wealth burdened by loans could result in a smaller tax base. The key point, however, is verification: liabilities could reduce the tax base only if they can be properly documented.

What would count towards taxable wealth?

Based on EY’s summary, in addition to real estate a much broader range of assets would be included in the tax base, including:

• bank deposits,
• securities,
• company and corporate shareholdings,
• receivables,
• cryptoassets,
• the surrender value of savings insurance policies,
• investment precious metals.

The list shows that the draft is not aimed only at conspicuous, high-value property. Financial and corporate wealth would also count, which could be particularly relevant for business owners.

Who it would affect: tax residence in Hungary and foreign wealth

According to the government’s information and the draft, for individuals resident in Hungary for tax purposes, total domestic and foreign wealth would be taxable. For non-residents, only real estate located in Hungary and Hungarian corporate shareholdings would count.

According to a Deloitte analysis, the draft interprets Hungarian tax residence more broadly than personal income tax does. In the consultancy’s assessment, this could mean that in certain cases even dual citizens could be taxed on the basis of their total wealth. For anyone with ties to more than one country, this part may be particularly important.

Spouses, children and foundations

According to the government, spouses would qualify as separate taxpayers, so each of them would be entitled to the exempt HUF 1 billion band. However, the wealth of minor children would be included in the parent’s tax base, except for inherited wealth and the child’s own earnings.

According to Deloitte’s summary, trust structures and private foundations would appear as separate taxpayers. In the firm’s interpretation, this is intended to prevent wealth from being split into several parts and pushed below the HUF 1 billion threshold.

Valuation could be the hardest question

According to PwC, determining the value of wealth could be the biggest question, especially in the case of unlisted companies and the reserves embedded in them. The value of a bank deposit is clear, but the value of a share in a family business is far less so.

According to PwC’s summary, the draft would allow 50 per cent of the fee for the mandatorily required expert valuation, up to a maximum of HUF 2 million, to be credited against the wealth tax payable. This would partly offset the cost of valuation, but it would not remove valuation disputes.

How many people could it affect, and how much revenue could it bring?

According to analyses by BDO and WTS Klient, the rule could affect around 15,000 private individuals and 2,000 asset managers, while expected revenue could average about HUF 200 billion a year, or roughly HUF 800 billion over four years in total.

These are estimates and may differ depending on the final rules and the actual valuation of wealth. Because of the threshold, the vast majority of Hungary’s population would not be directly affected by the draft.

What is worth paying attention to now?

Anyone whose net wealth may be close to the threshold should review what assets they have, how these can be valued, and what documents can be used to verify their liabilities. As the draft may still change, it is worth treating specific calculations with caution until the final text of the law is published. This article is general information, not tax advice: in an individual case, it is worth consulting a tax specialist.