Hello! I own a plot of land and am currently the sole owner in the land registry. Now, I want to build a house on it together with my boyfriend. Naturally, he will also contribute 50% to the future mortgage.
My question is: How can we secure his ownership rights—preferably in a cost-effective way?
1.) Gift? The tax-free allowance here for unmarried couples is only 20,000 EUR. The land is definitely worth much more (400 EUR per sqm (107 USD per sqft) according to the official land value on 757 sqm (8145 sqft)).
2.) Sale of a share? Is it possible for me to sell him part of the land for, say, 1 EUR to avoid property transfer tax?
3.) I transfer part of the land to him—how is the value of the land and therefore the amount of property transfer tax determined? I only bought the plot 2.5 years ago. There is still an outstanding loan. Will the purchase price from 2.5 years ago be used, or the official land value instead?
4.) I transfer only a minimum share of 10%, and we arrange the exact division through a cohabitation agreement (or a marital contract).
5.) Any other options?
Have you ever faced a similar issue?
I have called several tax offices, but unfortunately, no one has time for us. The COVID crisis is causing a lot of extra workload there :-(
Thanks in advance!!
My question is: How can we secure his ownership rights—preferably in a cost-effective way?
1.) Gift? The tax-free allowance here for unmarried couples is only 20,000 EUR. The land is definitely worth much more (400 EUR per sqm (107 USD per sqft) according to the official land value on 757 sqm (8145 sqft)).
2.) Sale of a share? Is it possible for me to sell him part of the land for, say, 1 EUR to avoid property transfer tax?
3.) I transfer part of the land to him—how is the value of the land and therefore the amount of property transfer tax determined? I only bought the plot 2.5 years ago. There is still an outstanding loan. Will the purchase price from 2.5 years ago be used, or the official land value instead?
4.) I transfer only a minimum share of 10%, and we arrange the exact division through a cohabitation agreement (or a marital contract).
5.) Any other options?
Have you ever faced a similar issue?
I have called several tax offices, but unfortunately, no one has time for us. The COVID crisis is causing a lot of extra workload there :-(
Thanks in advance!!
N
nordbayer13 May 2020 12:34And possibly, at the same time, the mortgage lien should be increased to cover the financing for the entire house construction. How is the gift tax calculated in that case?
nordbayer schrieb:
Then explain whether you would calculate the gift tax on the full value of the property if a portion of the existing loan secured on the property is “gifted” at the same time. No, the gift tax would apply to the value of the property minus the amount of the “gifted” loan (or, of course, only on the gifted portion).
nordbayer schrieb:
Instead, a purchase price is agreed upon and financed by changing the mortgage. I’m not exactly sure what you mean by that.
nordbayer schrieb:
And possibly, at the same time, the land charge might be increased to cover the financing for the entire house construction. How is the gift tax calculated in that case?Add and subtract
N
nordbayer13 May 2020 12:46So how is it possible to gift clearly separated portions of loans when the bank requires joint and several liability from both parties for the house construction?
I don’t understand the issue. Property value is 400,000 with a loan of 200,000. Person A gifts half of the property to person B. So afterwards, both own half of the property. They also share half of the debt. For tax purposes, that would be 100,000. Half of the “net value.”
Edit: Of course, clarify this with the bank beforehand.
Edit: Of course, clarify this with the bank beforehand.
N
nordbayer13 May 2020 13:07It might also be possible to structure the shares and loan amounts so that, by the end of the house construction, there is ultimately no gift involved. This would generally be the better option for the original poster, as they should avoid giving away anything unnecessarily.
Example: Woman land value 400
Woman loan 100
Man has equity 0
House costs 500, which means the loan must be increased to 600. Both must be jointly liable for the 600. Please list all transactions and contract arrangements in this example so that the woman ends up owning 300 more of the house—repaid jointly and equally—than the man, thus effectively no gift took place.
I could immediately suggest various structuring options here, all of which have their pitfalls and different effects on land registry fees, notary fees, taxes, and risks. However, that is what tax advisors and notaries are for.
Example: Woman land value 400
Woman loan 100
Man has equity 0
House costs 500, which means the loan must be increased to 600. Both must be jointly liable for the 600. Please list all transactions and contract arrangements in this example so that the woman ends up owning 300 more of the house—repaid jointly and equally—than the man, thus effectively no gift took place.
I could immediately suggest various structuring options here, all of which have their pitfalls and different effects on land registry fees, notary fees, taxes, and risks. However, that is what tax advisors and notaries are for.
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