Hungarian wealth tax: Key questions raised by the proposed legislation

The draft of the proposed law about the wealth tax has been published which would introduce a new tax liability on net assets exceeding HUF 1 billion (approx. EUR 2.7 million). While the proposal contains detailed rules on valuation and tax base determination, it also raises several questions that may create significant interpretative and practical challenges during its application.

Not only resident but also non-resident private individuals may be subject to the wealth tax. As a general rule, a resident individual’s tax liability would extend to their worldwide assets, while a non-resident would be taxable only on assets connected to Hungary as defined by law. The tax base would consist of the portion of net wealth exceeding HUF 1 billion, calculated in accordance with the valuation rules set out in the proposal. Although the legislation may still change, the current draft already highlights several areas requiring special attention.

How can the actual value of assets be determined?

The value of cash, listed securities and other regularly traded assets is generally relatively easy to determine. However, valuing real estate, family businesses, shares in non-listed companies or business assets is considerably more complex.

The proposal relies on various calculated values and standardised valuation methods. In the case of a non-listed shareholding, for example, a company’s equity, profit-generating capacity and hidden reserves may all influence its valuation. In some cases, an independent expert valuation may be required. Nevertheless, the calculated value does not necessarily correspond to the amount for which an asset could actually be sold on the market. For example, the value of a minority interest in a family business may be significantly lower than the amount proportionately allocated to it based on the overall value of the company. Similar issues may arise when valuing real estate that is difficult to sell or burdened by usufruct rights or other encumbrances.

One of the most important practical questions will therefore be the extent to which the statutory valuation methods reflect actual market values, and what evidence taxpayers may rely on where the calculated value significantly exceeds the realistically achievable market price.

Could the regulation encourage the fragmentation of wealth?

The HUF 1 billion threshold applies on a per-taxpayer basis. This makes it particularly important whether an asset is owned by a single individual or divided among several family members.

For example, if an asset with a net value of HUF 2 billion is owned by one person, the portion exceeding HUF 1 billion would be taxable. However, if the same asset is owned equally by two individuals, each person would be allocated HUF 1 billion, potentially resulting in no taxable base at all.

The proposal specifically regulates a number of such situations. Jointly owned assets must generally be taken into account according to the ownership ratio. However, special allocation rules apply to matrimonial property and the assets of minor children. For example, in certain cases, assets owned by a minor child are allocated to the parent’s tax base, preventing the HUF 1 billion threshold from being multiplied through transfers within the family.

Preventing the avoidance of the wealth tax

The proposal also contains a general anti-avoidance provision. Under this rule, the tax authority may examine transactions aimed at circumventing the wealth tax valuation or tax base determination rules. According to the explanatory memorandum, the review period may extend back to the date when the government’s intention to introduce the tax became publicly known (14 May 2026).

This may result in significant uncertainty, as family wealth restructurings, succession planning arrangements and generational transfers can serve genuine economic and family objectives while simultaneously reducing future wealth tax exposure.

Ownership through foreign companies and real estate holdings

For non-resident individuals, the proposal is intended to tax not only directly owned Hungarian real estate. Tax liability may also extend to interests held in foreign companies if those companies directly or indirectly own significant Hungarian real estate assets.

According to the explanatory memorandum, indirect ownership through intermediary companies must also be taken into account when determining the ownership ratio. The explicit aim of the rule is to prevent Hungarian real estate from falling outside the scope of the wealth tax through the use of foreign holding structures.

However, the application of Hungarian domestic law alone is not sufficient. The bill also recognises the primacy of international treaties covering wealth taxation. Therefore, the applicable double taxation treaty must be analysed separately in each case.

The treaties are not uniform in this respect. For example, some treaties allow the taxation of directly owned immovable property in the state where the property is located but do not contain a specific provision regarding shares in real estate-rich companies. In such cases, the shares may fall within the category of “other property”, which may be taxable only in the owner’s state of residence.

As currently drafted, the proposal could therefore result in two Hungarian real estate investments with identical economic substance being taxed differently depending on the tax residence of the ultimate owner and the corporate structure through which the property is held.

It is also important to distinguish between capital gains realised on the disposal of shares in a real estate company and the annual wealth tax imposed on those shares. Many tax treaties allow the state where the underlying real estate is located to tax gains arising from the sale of shares deriving more than 50% of their value, directly or indirectly, from such property. However, this does not automatically mean that the same state may levy an annual wealth tax on those shares. Such taxation generally requires a specific provision in the treaty’s wealth tax article or protocol.

Will there be sufficient liquidity to pay the tax?

Wealth tax is levied not on income earned but on the value of assets held on a specific valuation date. This may create challenges, particularly for individuals whose wealth is largely tied up in real estate or operating businesses.

A high-value property or family business may generate a significant wealth tax liability even if it produces limited cash flow in the relevant year. As a result, taxpayers may need to sell investments, distribute dividends, obtain financing or even dispose of part of the taxable asset in order to meet their tax obligations.

This issue may be particularly acute in the case of valuable company shares where profits are retained for business development or operational financing. In such circumstances, the shareholder may face a substantial tax liability despite receiving no liquid income from the investment.

Which debts can reduce the tax base?

The draft law seeks to tax net wealth, but not all liabilities can automatically reduce the tax base.

To be deductible, a debt must genuinely exist, be properly documented and be supported by a specific legal basis or a document with sufficient evidentiary value. For non-resident individuals, an additional requirement is that the debt must be directly connected to the acquisition, maintenance, improvement or value-enhancing investment of an asset taxable in Hungary.

This may create difficulties in cases involving group financing arrangements, general-purpose loans or structures where debt is incurred at company level rather than directly by the private individual. It will also be necessary to analyse how company-level liabilities are reflected in the valuation of company shares and whether the same debt might effectively be taken into account twice.

To whom should sssets be attributed?

The proposal does not rely solely on formal legal ownership. Specific attribution rules apply to, among others:

• matrimonial property,
• assets owned by minor children,
• tax-transparent partnerships,
• trusts,
• private foundations,
• certain foreign wealth management structures.

In these cases, the taxpayer will not necessarily be the person in whose name the assets are formally registered. Determining the tax liability may also require an analysis of the entity’s operation, control rights, beneficiary status and place of effective management.

For international structures, a further question is whether a foreign trust, foundation or other wealth management arrangement can be classified within one of the Hungarian legal categories recognised by the proposal. Differences between private law and tax law classifications may easily lead to double taxation or situations where different jurisdictions attribute the same assets to different persons.

What should taxpayers now prepare for?

As the wealth tax rules are not yet finalised, the immediate priority is to assess their potential impact. In particular, taxpayers should consider:

• compiling an inventory of significant assets and ownership interests,
• identifying real estate and company shares that may be difficult to value,
• documenting debts directly connected to those assets,
• reviewing ownership and property arrangements within the family,
• mapping direct and indirect foreign corporate holdings,
• analysing applicable double taxation treaties in respect of foreign assets and non-resident persons,
• distinguishing genuine economic or family-driven reorganisations from transactions that could be regarded primarily as tax base reduction measures.

Overall, the greatest uncertainties arising from the bill relate to asset valuation, attribution of ownership, deductibility of liabilities and the interaction between domestic rules and international tax treaties.

It is therefore advisable to await the conclusion of the legislative process before drawing definitive conclusions. Nevertheless, preliminary impact assessments should already be considered, particularly where significant real estate assets, family businesses, trusts or international ownership structures are involved.