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!!
S
saralina8713 May 2020 13:08nordbayer schrieb:
Then explain whether you would apply the gift tax to the full land value if a portion of the outstanding loan is effectively "gifted" to the land, or if instead a purchase price is agreed upon and financed by modifying the mortgage. I believe there are several structuring issues to consider. The taxable acquisition (in this case, a gift) is not reduced by the mere existence of a mortgage but only to the extent that unpaid debt is secured by it.
In very simple terms, it is exactly as face described it. I don’t fully understand the problem either.
nordbayer schrieb:
And possibly, the mortgage will be increased at the same time to cover the full financing for the house construction. How would the gift tax be calculated then? See above.
face26 schrieb:
I don’t see the problem. Land value is 400,000. Loan is 200,000. Person A gifts half of the land to person B. Afterwards, both own half—both the land and the debts. The taxable amount is then 100,000. Half of the “net value.”
Edit: Of course, this should be clarified with the bank beforehand. N
nordbayer13 May 2020 13:15saralina87 schrieb:
The taxable acquisition (in this case a gift) is not reduced simply by the existence of a mortgage lien, but only to the extent that outstanding debts are secured by it.
In simple terms, it’s exactly as face described it. I don’t fully understand the issue either. And what if he buys it from her? By bank transfer and so on? Then it’s no longer a gift. But he still has to finance it, and for that, encumber the land register. Structuring, structuring, structuring.
S
saralina8713 May 2020 13:17nordbayer schrieb:
And what if he buys it from her? By bank transfer and all that? Then it’s no longer a gift. But he has to finance it and encumber the land register for that. Structuring, structuring, structuring. Then we’re no longer talking about gift tax but only about property transfer tax.
To be honest, I’m not entirely sure what you’re getting at...
N
nordbayer13 May 2020 13:26Example of a tax calculation for the amount of a gift when the plot of land was purchased 2 years ago for 50% above the current official land value.
S
saralina8713 May 2020 13:35nordbayer schrieb:
Example of tax calculation for the amount of the gift when the land was purchased 2 years ago for 50% more than the current official land value.You multiply the area by the official land value and then subtract the assumed debts (so discuss this with the bank beforehand to ensure everything goes smoothly) – done! If this results in a negative number or less than the tax exemption amount, then no gift tax applies. So, what exactly is the problem now?
N
nordbayer13 May 2020 13:46So, in the fictional example, does the woman have to sell the land to him at its actual market value to avoid gift tax?