An appeals court has thrown out a $500m (£372m) penalty that President Donald Trump was ordered to pay in a New York civil fraud trial last year.

Judge Arthur Engoron had ordered Trump to pay the fee for massively inflating the value of the Trump Organization’s properties in order to secure favourable loans.

In the lengthy ruling released on Thursday, judges on the New York Supreme Court’s Appellate Division stated that while Trump was liable for the fraud, the fine of nearly half a billion dollars was excessive and probably violated constitutional protections against severe punishment.

In the case Judge Engoron had ordered Trump to pay $355m, but with interest, that grew to more than $500m.

“While harm certainly occurred, it was not the cataclysmic harm that can justify a nearly half billion-dollar award to the state,” wrote Judge Peter Moulton.

In a post on his social media site, Truth Social, Trump claimed the decision was a “total victory”.

“I greatly respect the fact that the Court had the Courage to throw out this unlawful and disgraceful Decision that was hurting Business all throughout New York State,” he said. “It was a Political Witch Hunt, in a business sense, the likes of which no one has ever seen before.”

The New York Attorney General’s Office, which brought the case against Trump, also framed the decision as a win, as it upheld Trump’s fraud liability and the judges did not throw out other penalties that were not financial. The office plans to appeal against the decision on the fine to the state’s highest court, the Court of Appeals.

In a statement, the attorney general’s office said the judges “affirmed the well-supported finding of the trial court: Donald Trump, his company, and two of his children are liable for fraud”.

“It should not be lost to history: yet another court has ruled that the president violated the law, and that our case has merit,” it also said.

In the case against Trump, his two adult sons, and the Trump Organization, Judge Engoron also banned Trump from serving as a company director or taking out loans from banks in the state for three years.

Thursday’s decision kept in place this and other nonmonetary penalties that Judge Engoron imposed.

The 323-page ruling, which included three lengthy opinions, revealed disagreement among the five judges on the panel.

They were primarily divided over the merits of the original lawsuit brought by Letitia James, who had accused Trump and his sons of “persistent and repeated fraud”.

While several judges said she was “within her lawful power in bringing this action”, one believed the case should have been dismissed and two said that there should be a new trial of a more limited scope.

Those two, though, joined the decision to throw out the fine “for the sole purpose of ensuring finality”, wrote Judge Moulton.

American voters had “obviously rendered a verdict” on Trump’s political career, Judge Moulton also wrote, and “this bench today unanimously derails the effort to destroy his business”.

The ruling came almost a year after the panel heard oral arguments on the appeal, during which several judges appeared skeptical of the civil fraud case.

Trump’s son, Eric Trump, who was involved in the case, celebrated the decision in a post on social media.

“After 5 years of hell, justice prevailed!” he wrote.

The ruling amounted to a “judicial version of kicking the can down the road”, said Will Thomas, an assistant professor of business law at the University of Michigan.

“By its own admission, the Appellate Courts is punting the real legal decision up to the New York Court of Appeals, noting that its unusual decision was made ‘for the sole purpose of ensuring finality,'” he said.

“It’s hard to take any conclusions from this … except that we’ll have to continue to wait that much longer to find out the ultimate outcome in James v Trump.”

In September 2023, Judge Engoron ruled Trump was liable for business fraud, finding he had misrepresented his wealth by hundreds of millions of dollars. Another trial was held in 2024 to determine the penalty.

In one instance, the judge found Mr Trump’s financial statements had wrongly claimed that his Trump Tower penthouse was almost three times its actual size.

Trump had said that the case brought by James, a Democrat, was politically motivated.

Thursday’s unusually lengthy ruling also reflected the historic predicament of how to handle a massive fraud case involving a sitting president, said Mark Zauderer, a longtime appellate attorney in New York.

“Would you have a 300-page opinion if this were Joe Smith the businessman, and not Donald Trump?” Mr Zauderer asked.

Additional reporting by Kayla Epstein