Hello everyone,
even if this topic doesn’t exactly fit into the area of construction financing, I’d like to ask a question here.
Broadly speaking, it does relate to costs ;-)
The question concerns gift tax when acquiring the land.
We have the opportunity to buy a 650m² (7000 sq ft) plot of land for 155€ below the latest official land value, on which we plan to build a single-family house.
There is no close family relationship between the parties.
The difference to the official land value is therefore around 100,000€. Legally, there is an exemption of 20,000€ per person (we are married and both will be listed in the land registry).
This leaves 60,000€ on which, theoretically, gift tax at rate class III of 30% would apply. That amounts to almost 18,000€, which is quite a significant sum.
I have often read in real estate contexts that the type of use plays an important role.
Often, there is no gift tax liability if the property is used by the recipient themselves. However, I cannot find clear information on this, especially regarding land plots.
I have already spoken with a local notary and a tax advisor.
The notary couldn’t give any clear statement, and the tax advisor just recited the tax classes and exemption amounts from the tax code.
But I already knew that after five minutes of online research.
Therefore, I would like to tap into the collective knowledge here in the forum.
How does the tax authority handle this? Is the tax due in full? Are there ways to reduce the amount?
Many thanks in advance for your feedback.
If you need more information, I’m happy to provide it.
Best regards!
even if this topic doesn’t exactly fit into the area of construction financing, I’d like to ask a question here.
Broadly speaking, it does relate to costs ;-)
The question concerns gift tax when acquiring the land.
We have the opportunity to buy a 650m² (7000 sq ft) plot of land for 155€ below the latest official land value, on which we plan to build a single-family house.
There is no close family relationship between the parties.
The difference to the official land value is therefore around 100,000€. Legally, there is an exemption of 20,000€ per person (we are married and both will be listed in the land registry).
This leaves 60,000€ on which, theoretically, gift tax at rate class III of 30% would apply. That amounts to almost 18,000€, which is quite a significant sum.
I have often read in real estate contexts that the type of use plays an important role.
Often, there is no gift tax liability if the property is used by the recipient themselves. However, I cannot find clear information on this, especially regarding land plots.
I have already spoken with a local notary and a tax advisor.
The notary couldn’t give any clear statement, and the tax advisor just recited the tax classes and exemption amounts from the tax code.
But I already knew that after five minutes of online research.
Therefore, I would like to tap into the collective knowledge here in the forum.
How does the tax authority handle this? Is the tax due in full? Are there ways to reduce the amount?
Many thanks in advance for your feedback.
If you need more information, I’m happy to provide it.
Best regards!
J
Juicy199020 Mar 2021 17:390
So that argument obviously no longer applies. Thanks for the suggestion to check it again 😉
Is it possible to argue with the tax office that the standard land value for the area is set too high for an undeveloped plot?
For example, what happens if there is an old building on the plot that needs to be demolished, or if the land has to be filled before building a single-family house, and so on?
I think I once read that the tax office used to apply a 20% reduction on the standard land value.
I just wonder if the calculation is really that rigid and if the tax office strictly follows it.
Best regards!
saralina87 schrieb:I did some more reading on this. It only applies to owner-occupied properties between life or marriage partners.
What special rule are you referring to?
So that argument obviously no longer applies. Thanks for the suggestion to check it again 😉
Is it possible to argue with the tax office that the standard land value for the area is set too high for an undeveloped plot?
For example, what happens if there is an old building on the plot that needs to be demolished, or if the land has to be filled before building a single-family house, and so on?
I think I once read that the tax office used to apply a 20% reduction on the standard land value.
I just wonder if the calculation is really that rigid and if the tax office strictly follows it.
icandoit schrieb:That’s naturally possible only with a distant family relationship. Normally, on the open market, nothing goes for less than the standard land value.
I also want a building plot for 150 euros below the standard land value.
Where can you still find something like that?
Best regards!
Juicy1990 schrieb:
I have often read in real estate that the type of use is crucial.
For owner-occupied properties, gift tax is often not applicable. You probably mean section 13d of the Inheritance Tax Act or 13 (1) No. 4a–c of the Inheritance Tax Act.
However, 13d only applies to developed land that is rented out both before and after the transfer.
Section 13(1) is also unlikely to apply in your case.
Juicy1990 schrieb:
I think I once read that the tax office used to deduct another 20% from the official land value.
I’m just wondering whether the calculation is really that strict and if the tax office strictly follows it. The valuation is done according to section 179 of the Valuation Act using the standard land value. You would need to provide very specific reasons why the land value does not reflect the market value — see section 198 of the Valuation Act.
This will probably be difficult, as the official land value often exceeds the actual market value by a significant margin.
You can either pay more, which will increase the tax base for the property transfer tax accordingly, or you can receive a gift, be happy to pay less, and then pay the applicable gift tax instead. ;-)
J
Juicy199020 Mar 2021 18:14Zubi123 schrieb:
You can either pay more and consequently have a higher taxable base for the real estate transfer tax (or stamp duty), or you receive a gift, be happy about paying less, and instead pay the applicable gift tax ;-)
In the end, for me, any euro subject to a mixed gift is better than a higher purchase price plus real estate transfer tax and notary fees, but I would still like to avoid it somehow, even though it probably won’t work. In life, only two things are certain: death and taxes 😉
Just out of curiosity, what happens if the city or municipality sells below the standard land value? Does the tax office get suspicious in that case? I can hardly imagine that...
Juicy1990 schrieb:
Just out of curiosity, how does it work when the city or municipality sells below the standard land value?The question is whether, in this case, a gift is involved.
According to Section 516 of the Building Code, a gift is a gratuitous transfer made with the intention of benefiting the recipient.
This is usually not the case with a municipality.
Why are you getting the property for half the standard land value? There must be either an intention by the current owner to make a gift, even if there is no family relationship,
or alternatively, some form of consideration (side agreement) in another form (exchange) must be involved.
J
Juicy199020 Mar 2021 20:57Zubi123 schrieb:
Why are you getting the land for half the market value? There must either be a gift element from the previous owner, even if there is no family relationship, or alternatively a compensation (side agreement) in another form (exchange) involved.
It is distant kinship, but regarding tax exemptions or tax brackets, that is irrelevant. Besides the "family discount," there are no additional side agreements.
Then agree on the purchase price as the BRW minus €40,000.
However, you do not pay the difference between the price you actually want/should pay, but instead arrange a loan with minimal interest. After 10 years, a portion of the loan amount (€40,000) will be forgiven.
If applicable, this may happen again after another 10 years.
However, you do not pay the difference between the price you actually want/should pay, but instead arrange a loan with minimal interest. After 10 years, a portion of the loan amount (€40,000) will be forgiven.
If applicable, this may happen again after another 10 years.