Property Tax is an Inevitable but Attention-Demanding Fixed Cost

Just as the car tax has made waves this year, in the context of real estate, land tax should also be treated as a recurring cost that requires attention and may increase in the future.

Following the regular assessment in 2022, many have noticed an increase in the taxation price, but the impact of changes in land tax has been felt less, as statutory protection mechanisms have been in place that set a maximum land tax increase limit, initially 10% per year.

However, the Land Tax Act has been amended, protection mechanisms have been reduced, and the tax rates reduced in 2023 have been increased.

According to the current Land Tax Act, the local government council must establish tax rates for each subsequent land purpose category no later than October 1 of the year preceding the tax year:

1) for residential land and the homestead area of agricultural land 0.1–1.0 percent of the land's taxable value per year;

2) for agricultural land not mentioned in point 1, 0.1–0.5 percent of the land's taxable value per year;

3) for land with other purposes not mentioned in points 1 and 2, 0.1–2.0 percent of the land's taxable value per year.

The local government council shall establish by regulation the maximum limit for the annual increase of land tax in the range of 10–100 percent no later than October 1 of the year preceding the tax period. Additionally, the local government council may establish by regulation a tax benefit for homestead land of up to 1000 euros no later than October 1 of the year preceding the tax period.

This means the maximum tax rate can be 2% of the taxable value per year, if the tax limit is 100% per year and the homestead land tax benefit does not apply.

Looking at 2026 land tax rates and tax benefits for 2026 (an all-Estonia summary and your own property's 2026 land tax can be viewed on the Tax and Customs Board website), the picture is very varied. Tax and limit rates in different municipalities are very different. Both minimal and maximum rates have been applied (2% tax rate and 100% limit). It is true, however, that in regions where the maximum rate is applied, the taxable value of land is generally low.

What does this mean for a real estate owner? As mentioned with car tax, this is a situation where the annual cost is not large compared to the value of the asset, but it is still a recurring cost. And depending on the nature of the asset, it can be larger or smaller.

By now, owners of cash-flowing real estates have already felt this, where the land tax increase has consumed some of the cash flow growth achieved through rent indexing. This has been felt and will be felt more by owners of idle and misused real estate. Apartment owners have also felt this when the land plot is large and the number of apartments is small and the homestead land tax benefit does not apply (for example, it is not the primary residence).

Can you do anything about this yourself? Yes, you can do a few things.

First, when purchasing real estate, you should pay attention to the possible size of land tax and the possibility of tax changes (the likelihood of an increase in the future).

Second, as a real estate owner, you can familiarize yourself with and check the basis for determining land tax on existing real estate, for example, on the portal minu.kataster.ee. If the land tax cost seems too high, it is worth checking whether land tax is increased by, for example, an unrealized but large building rights detail plan, which can be declared void, or whether the land plot is being used according to its intended purpose.

And third, it is possible to find an even temporary income-generating application for idle real estate.