The recent “bank-defunct” “court-seized” live market was backed by the accelerated disposal of bad assets in the banking sector - in the first three quarters of 2025, the national judicial auction of more than 120,000 units was held, an increase of 37 per cent over the previous year, and the amount of assets awaiting disposal was close to 86 billion yuan. However, the tax-related logic of such real estate transactions is complex, and most people are prone to confusion as to the risk of tax charges bearing the main and preferential policies, hidden cost overruns, property rights disputes, etc. This paper sets out the rules for the full-process fees of the debt-free house transaction, defines the tax obligations of the bank (seller) and the buyer, the preferential rights and the main points of pit avoidance, and helps to keep the transaction costs in check。
I. Core tax logic for debt-free housing transactions: two-step accounting for accountability
Unlike ordinary real estate transactions, “home-to-house debt” needs to be broken down into two separate transactions at the tax level, and the accounting of taxes and fees needs to be defined in stages:
(a) first step: the debtor's property in satisfaction of the debt is considered to be “the debtor's sale of the property” and is required to pay the corresponding taxes (mostly due to the debtor's failure to pay, inter alia, the debtor's loss of connection, bankruptcy, etc., and vulnerability to legacy taxes)
Step 2: the bank disposes of the encumbered property to the buyer as the “bank sells the property”, the bank assumes the core tax obligation as a statutory seller and the buyer is required to pay the submit rate。
The tax and expense rules for both types of transaction are applied independently and are subject to separate controls to avoid confusion of duties and responsibilities leading to default or mispayment。
Banks as sellers: tax-related detail and preferential policies (core focus)
Banks are required to pay vat, land value added tax, property tax (held period) etc. For the disposal of debt-free houses, some of which are subject to policy preferences, subject to strict conditions, with the following core rules:
(i) value added tax (vat): the difference is taxed mainly, and the invoice is taxed separately
Vat is the core tax for banks dealing with debt-free housing, and preferential policies are concentrated but with clear limitations, and tax options need to be selected in relation to the time taken to acquire property:
1. Core preferential policies (in accordance with ministry of finance, general directorate of taxation, proclamation no. 35 of 2023, renewed by decree no. 31 of 2022):
Banking financial institutions, financial asset management companies (general taxpayers) dispose of debt-free real estate, with the option of “sale at full price and at out-of-price costs less the balance at the time of the offsetting” and applying a 9 per cent tax rate. But the core pain is that, when the margin is chosen for tax purposes, the offsetting portion of the debt may not be invoiced exclusively for vat, and only ordinary invoices can be issued — if the buyer is a general taxpayer enterprise, it will not be possible to offset the corresponding portion of the revenue tax (e. G. $1 million for the entry tax of approximately $8. 26 million) and the actual cost of house purchases will increase by more than 6 per cent。
2. Special options for obtaining property by 30 april 2016:
In the case of debt units acquired by 30 april 2016, the bank may opt for a simple tax method, which is based on a 5 per cent collection margin (net of the original purchase price or the amount of the debt offset), taking into account the low tax rate and operational simplicity; or a general tax method (9 per cent rate), which is fully taxed and deducted from the entry tax (subject to actual receipt of a receipt)。
3. Preferential premises: an instrument in force for a court or arbitral institution must be held, no vat benefit is available for a private debt settlement agreement, a full tax rate of 9 per cent is required and the tax burden increases significantly。
(ii) land value added tax: no general benefits, tax based on old housing rules
Banks are required to pay land value-added tax (vat) normally for the disposal of debt-free houses, without a specific preferential policy, and the rules for the collection of taxes are based on transfers of old houses:
1. Tax logic: taxable income at the sale price of the property, deduction of reasonable deductions such as the value at the time the debt is set off, taxes paid at the transfer chain, etc., and application of 30-60 per cent excess progressive tax rates to value added
2. Special exception: land value added tax (vat) is exempt only from the disposal of undesirable assets by the four major financial asset management companies of sindar, huawan, wall and east [2001] no. 10), ordinary banking financial institutions do not apply the benefit
3. Empirical elements: banks are required to retain credit certificates, certificates of sale of auctions, certificates of payment of taxes and fees, etc., as a basis for deduction of accounting for projects, so as to avoid a high tax base due to incomplete information。
(iii) real estate tax and urban land use tax: significant differences between territorial exemptions and payments made during holding period
The banks are required to pay property tax and urban land use tax during the period of holding a debt-free house, and some parts of the area are eligible for relief, with prior verification of territorial policies:
1. Tax rules:
(a) property tax: a residual tax of 10-30 per cent of the original value of the property, at a rate of 1. 2 per cent, and a tax of 12 per cent of rental income in the case of rents held for a period of time
(a) urban land use tax: tax based on the actual area occupied, with annual tax instalments (cities $1. 5-30/m2, medium cities $1. 2-24/m2, etc.)
2. Relief policy: in accordance with proclamation no. 35, banks are autonomously exempt from two taxes on real property in debt satisfaction. At present, there are rules for relief in liaoning, zhejiang and guangdong. Beijing and shanghai have not yet been granted relief。
(iv) taxes and stamp duties: total exemption from receipt and partial exemption from disposal
1. Taxes: banks are exempt from tax when receiving property for which they have paid their debts; they are not subject to tax (the tax is borne by the recipient)
The stamp duty: the contract in respect of which the bank receives and disposes of the property to which the debt is owed, the certificate of transfer of title, is exempt from its own stamp duty, provided that the buyer is required to pay the stamp duty and the bank has no obligation to withhold payment。
Buyer as buyer: obligatory taxes and potential risks (focus on circumvention)
Buyers are subject to core taxes, such as deed taxes, stamp duties, etc., and are wary of the risk of a legacy tax advance, as follows:
(i) compensatory tax: mandatory hard pay, 3-5% tax
Taxes are the only mandatory statutory tax to be paid by the buyer, and there is no room for relief
1. Tax basis: the transaction price (excluding vat) determined by the transfer of tenancy contract is the base
2. Tax rates: determined by provinces, autonomous regions and municipalities directly under the central government within a range of 3 to 5 per cent, depending on local realities (e. G. Beijing, shanghai, 3 per cent and some 3 and 4 per cent)
3. Example of accounting: if the transaction price is 2 million yuan (excluding vat), the amount of the tax is 60,000 yuan at the 3 per cent rate
Accounts processing: the tax due by a buyer of a business is charged to the cost of recording the property as the basis for subsequent depreciation, property tax and taxation。
(ii) stamp duty: taxable by contract amount, reduced by half on a small scale
When a buyer enters into a contract for the purchase or purchase of property, it is required to pay a stamp duty under the tax “under transfer of title”:
1. Rules on taxation: 5 per 10,000 of the amount paid under the contract, i. E. A stamp duty of 1,000 yuan for a contract of 2 million yuan
Preferential policies: between 1 january 2023 and 31 december 2027, small-scale taxpayers and micro-enterprises were entitled to a discount of 50 per cent of the stamp duty, i. E., 2 million yuan on a two-point-five scale, and only 500 yuan on a contract。
(iii) value added tax: non-payment of purchase and transfer chain
Buyers are not subject to vat (tax obligation is in banks) when buying a debt-free house, but attention is paid to the type of invoice: in the case of a general taxpayer enterprise, the bank is required to issue a vat-specific invoice (only if the bank chooses a general tax basis) to ensure an entry tax credit; in the case of a subsequent transfer of the property, vat is paid in accordance with its own taxpayer status (9 per cent tax rate and 5 per cent collection rate)。
(iv) potential risk: advance of vendor legacy tax charges
Most buyers mistakenly assume that “moderated house = net price”, but may have to advance the outstanding legacy taxes of the debtor or bank: such as property tax, land value-added tax, non-payment by the debtor for the period of possession, transfer chain tax, etc. The tax authorities apply the “first-in-first-in-first-in-first-in-first-in-time” principle, which requires the settlement of all taxes and fees prior to the transfer, and the buyer may be forced to pay advances, resulting in actual costs that are far higher than anticipated and require verification of the settlement of taxes and charges in advance through court notices and tax inquiries。
To avoid the double risk of property rights and taxation
Some of the housing stock in the market appears to be low-priced, while the risk of death is hidden
(i) agreements to settle debts without court/arbitration instruments
Such properties are not disposed of through judicial proceedings, banks are not able to benefit from any tax incentives, are disposed of in full on a tax basis and buyers are required to bear higher costs for the purchase of the property; and, more critically, there may be property disputes (e. G. Multiple mortgages by the debtor, ownership of the property is not known), and the passage of households is vulnerable and even faces “free house”。
(ii) property with outstanding historical taxes and charges
Part-deficit housing is held in the name of the original owner for a long period of time, without payment of taxes such as property tax, land value-added tax, or in the case of non-payment of property fees, utilities, etc., with a one-time settlement of all arrears (tax + non-tax), advances that may amount to hundreds of thousands of yuan, a significant erosion of price advantages, and prior and full verification of the details of the arrears。
V. Summary: core points of control over taxes and fees on debt-free housing transactions
The logic of taxes and fees for bank debt-free house transactions is complex, and buyers and sellers need to be precise in controlling core rules:
For banks, priority needs to be given to the payment of vat differentials through judicial instruments, the choice of the best tax method in relation to the time available to the property, the simultaneous verification of property tax relief policies and the reduction of disposal costs
In the case of buyers, hard costs such as deed tax, stamp duty, confirmation of type of bank invoice issued (impact credit), full verification of the legacy of taxes and charges, and avoidance of the lack of judicial documents and outstanding risk sources。
The price advantages of a debt-free house need to be based on clear tax and fee planning and risk ranking, and only by adopting policies and clear accountability can cost overruns and property rights disputes be avoided and compliance transactions maximized。
