Suppose: seller A sells a property to buyer B for €300,000. Before the property has been legally transferred to B, B resells the same property to buyer C for €330,000. In real estate transactions, it is fairly common for a property to be resold to a third party shortly after purchase. In such cases, an so-called ABC transaction can be used, in which the property is transferred in quick succession from A to B and from B to C. Although this structure can be efficient in practice, it also involves various legal, tax, and practical considerations. In this blog, we discuss how an ABC transaction is structured in practice and what parties should take into account.
In an ABC transaction, a property is sold and transferred in quick succession to two parties.
There are three parties involved:
Typically, two purchase agreements are concluded in advance:
It is also possible for the onward sale to take place by means of an assignment (cession) or transfer of contract.
The transfer of the property can be carried out in different ways.
The first option is that on the day of completion, two transfer deeds are executed at the notary’s office:
In practice, these transfers usually take place immediately one after the other and can therefore be regarded as two separate transactions. Under this structure, the parties do not necessarily need to be aware of the arrangements made between all parties, including the purchase price. After the deeds have been registered, however, these details become publicly accessible.
The second option is that A transfers the property directly to C. This is documented in a single transfer deed. In this case, all parties will be aware of the arrangements made, including the purchase price.
An ABC transaction can be used in various situations.
Real estate trading
Real estate investors frequently purchase properties with the intention of quickly reselling them. When a buyer has already been found before the first transfer takes place, an ABC transaction can be used.
Property development
In property development, a developer may acquire a plot of land and immediately transfer it to a final investor or development vehicle.
Tax advantages
1. Efficient profit realization and no need for pre-financing
B can purchase a property and almost immediately resell it to C at a higher price. In that case, B does not need to finance the property and does not have to hold it for a long period, which results in lower financing costs and no maintenance costs for B.
2. Reduction of transfer tax under Article 13 of the Dutch Real Estate Transfer Tax Act (WBR)
In the case of two separate transactions, transfer tax is due twice: once on the A–B transaction and again on the B–C transaction.
However, when a property is transferred again within six months of a previous acquisition, a reduction of the tax base applies to the second acquisition.
This means that, for the second transfer, transfer tax is only paid on the value increase since the previous acquisition.
Example:
A sells a property to B for €300,000 → B pays transfer tax over €300,000.
Within six months, B sells the property to C for €330,000.
Due to Article 13 WBR, C only pays transfer tax over €30,000 (the value increase) and not again over the full €330,000.
In this context, parties may agree on how this tax benefit is allocated. For example, they may agree that the benefit accrues to B.
3. Reverse sequencing of completion
A policy decision by the State Secretary has approved that the transfer deeds of two or more successive and related transfers may be executed on the same day in reverse order.
This approval means that, even in a reversed completion structure, transfer tax is levied on the acquisition in the first executed deed, and Article 13 WBR applies to the subsequent transfers.
The notary first executes the transfer from B to C, followed by the transfer from A to B. However, registration in the public registers takes place in the normal order, ensuring legal correctness.
This administrative structure ensures that, in practice, C bears the full transfer tax burden.
It is therefore important for parties to make clear arrangements regarding the allocation of tax benefits at the time the purchase agreement is concluded.
There are several important points to consider.
First, the title must be in order. Often, two separate purchase agreements are concluded. It is important that any agreed special provisions in the purchase agreements—such as resolutive or suspensive conditions—are properly aligned with each other.
For example, if the B–C purchase agreement provides that it may be terminated if C fails to obtain financing, and this situation actually occurs, then B will remain the owner of the property if this has not been properly accounted for in the A–B purchase agreement.
In addition, it is important to properly record other special provisions, such as chain clauses, qualitative obligations, and/or easements, and to ensure that these are also passed on to legal successors in the purchase agreements.
A final point of attention concerns C’s information position. As noted earlier, it may occur that C is not fully aware of the arrangements made between A and B. This can raise questions, for example where there is a significant price difference between the transactions.
Finally, notaries tend to exercise extra caution in ABC transactions. Due to the increased risk of fraud or money laundering, additional checks are often carried out, including on price differences between transactions, the method of financing, and the relationship between the parties involved.
An ABC transaction is mainly used to quickly resell property, generate margin, and sometimes structure transfer tax more efficiently, without the intermediary actually acquiring and managing the property in its own name.
Do you have questions about an ABC transaction or would you like to know how this structure can be applied in your situation? Please feel free to contact Ngoc Nguyen or one of our other specialists within the Notarial Law team!
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