Sale of a Furnished Holiday Apartment

When a furnished holiday apartment is sold within the ten-year speculation period, the gain attributable to the sale of the furniture is not taxed as a speculative gain. This is because the furniture constitutes items of everyday use, which by statute cannot be the subject of a speculative gain.

Background: The sale of real property within ten years of its acquisition may give rise to a taxable speculative gain, just as the sale of other assets within one year at a profit may do so. For other assets — i.e., non-real-estate items — the speculation period is extended to ten years if those assets have been used to generate income in at least one year. However, the tax liability for other assets is excluded in the case of items of everyday use.

Facts: The claimants are spouses who acquired a holiday apartment in 2013 for letting purposes. They let the apartment in a furnished condition. In 2014, they spent approximately €41,000 on the furnishings (furniture and small appliances). In 2016, they sold the holiday apartment for €265,000; under the purchase agreement, €45,000 was attributed to the furnishings. The tax office recorded a speculative gain and included the entire purchase price of €265,000 in the calculation of the speculative gain.

Decision: The Münster Tax Court (FG) denied a taxable speculative gain to the extent that the claimants had sold the furnishings along with the apartment, and allowed the claim accordingly:

• The sale of the holiday apartment did give rise to a taxable speculative gain because the claimants sold the apartment within ten years of acquisition. The ten-year speculation period also applies to the furnishings sold along with the property, because these had been used to generate income in at least one calendar year.
• However, the furnishings are assets of everyday use and are therefore not subject to taxation on speculative gains. Assets of everyday use are items that typically lose value and/or have no potential for appreciation, for example used cars. This requirement is met in the case of apartment furnishings, so that no speculative gain arose in this respect.
• With regard to the amount of the non-taxable gain attributable to the furnishings, the court relied on the contractual allocation of the purchase price; under that allocation, €45,000 was attributed to the furnishings. While this amount exceeded the acquisition costs for the furnishings, which amounted to only €41,000 in 2014, the reason for the apparent increase in value lay in the fact that in 2016 the buyer was able to acquire a fully furnished apartment and let it immediately. In addition, the claimants had contributed substantial work of their own, and the tradesman engaged in 2014 had furnished several apartments in the building and had therefore worked at particularly favourable rates.

Notes: A contractual allocation of the purchase price is not accepted for tax purposes if it is merely a sham or constitutes an abuse of legal arrangements, i.e., serves only to save tax. The FG found that these conditions were not met in the case at issue. However, as a rule, an allocation of the purchase price will not be recognised by the tax office if it results in an increase in value attributable to the furnishings. This is because furnishings typically lose value, all the more so in the case of a holiday apartment. In the court proceedings, however, the claimants gave a convincing explanation as to why the acquisition costs for the furnishings had been unusually low.

A speculative gain is increased by depreciation already claimed. A speculative gain can therefore also arise where the sale price corresponds to the acquisition costs.