Capital charge: capitalised or expensed?
Two identical flats, the same €120 capital charge, the same rent. One owner deducts the charge, the other doesn't. The difference is not down to them and doesn't show on the invoice — the housing company settled it in its accounts.
What this is about
Through the capital charge the housing company collects the loan's repayments and interest from its shareholders. In its accounts the company may treat the proceeds in two ways, and the choice is the company's — not the shareholder's.
| Expensing | Capitalisation | |
|---|---|---|
| In the company's accounts | Income in the profit and loss account | To equity, into the fund |
| Landlord's taxation | Deductible expense from rental income | Not deductible |
| Effect on acquisition cost | No effect | Increases the shares' acquisition cost |
| The benefit falls | Every year | Only at sale — if even then |
From the company's point of view the choice is technical: capitalisation looks better in the accounts, because loan repayments don't pass through the profit and loss account. In the shareholder's taxation it is anything but technical.
What the difference costs
A studio, rent €800/month, maintenance charge €175/month, capital charge €120/month, loan interest €2,500/year, annual repairs €400/year, other income-earning expenses €300/year.
| Item | Expensed | Capitalised |
|---|---|---|
| Rental income | 9 600 € | 9 600 € |
| Deductions | − 6 740 € | − 5 300 € |
| Taxable rental income | 2 860 € | 4 300 € |
| Capital income tax 30 % | − 858 € | − 1 290 € |
| Difference per year | 432 € |
Over ten years of ownership the difference is 4 320 € — on the same rent, from the same flat. Measured against the expected return it is a significant sum, and it appears in no sales listing.
A capitalised charge raises the acquisition cost and so reduces the capital gain on sale. But if the sale uses the presumed acquisition cost instead of the real one, the presumption replaces the entire real acquisition cost — and the capitalised charges then go wholly unused. The deduction lost each year is therefore not automatically recovered on sale.
How to find out which applies in your company
- Ask the property manager — the fastest route, and it is worth asking for the answer by email so you have it on record for tax purposes.
- The property manager's certificate — details of the charges and the company loan, often the treatment as well.
- The notes to the financial statements — capitalisation shows as a change in equity; expensing appears among charge income in the profit and loss account.
- The minutes of the general meeting — the decision is made when the budget is approved.
Treatment can change from one financial year to the next. A company that expensed last year may capitalise this year. An answer obtained once does not carry through your whole holding period.
What can be done about it
Before buying: establish the treatment as part of going through the documents, alongside the size of the company loan and the works ahead. A capitalising company is no obstacle to buying, but it is a cost that belongs in the calculation before you offer.
During ownership: a shareholder can raise it at the general meeting. The decision belongs to the company, and it also reflects the interests of shareholders who live in their own flats — for them expensing brings no such benefit. Assume, then, that the practice will not change at your request.
In your calculation: use the treatment that actually applies, not an assumption. A single checkbox changes the after-tax return, and that is precisely the figure on which properties should be compared.
In the rental income tax calculator the treatment of the capital charge is a single option: you see the taxable income, the tax and what's left after tax both ways. Included in the Basic tier; the property's basic details and cash flow are free.
Open the tax calculator →Sources and further reading
The Finnish Tax Administration's guidance on the taxation of rental income (deductibility of the capital charge, addition to the acquisition cost), the Income Tax Act (calculation of capital gains and the presumed acquisition cost), the Limited Liability Housing Companies Act (charges and decision-making at the general meeting). The example is calculated on the assumptions set out here. General information, not tax or investment advice; the company's treatment must always be checked with the company itself.