ᐅ Moving in before transfer of ownership / usufruct / rental agreement – disadvantages?
Created on: 31 Mar 2021 13:22
F
Frelili
Hello everyone,
I am completely new here and also new to the topic of homeownership and property, and I feel a bit like I’m in a vast, bottomless pit.
I would like to ask a first question here for orientation and try to keep it as brief but precise as possible. Thank you.
So:
The question:
Is it allowed (I think yes), but is it somehow disadvantageous if the child already moves into the apartment now, i.e., before the gift transfer and rental agreement, and lives there rent-free for three months?
Are there any disadvantages regarding the tax authorities, the gift, the property valuation for the gift contract, or anything else? Or does it not matter at all?
Thank you very much!
Good luck
I am completely new here and also new to the topic of homeownership and property, and I feel a bit like I’m in a vast, bottomless pit.
I would like to ask a first question here for orientation and try to keep it as brief but precise as possible. Thank you.
So:
- An apartment was purchased by the parents and has remained empty ever since, but it would basically be move-in ready immediately (more or less, there is a functioning bathroom and an old kitchen with old but working appliances).
- The apartment is therefore empty and unoccupied, never lived in by the parents, and never rented out.
- The apartment is supposed to be gifted to the child within the next three months, at the latest by June of the current year.
- The child (the recipient of the gift and thus the future owner) wants and is allowed/able to move into the apartment as a tenant.
- The rental agreement between the parents (the usufruct grantors) and the child (the future owner but also tenant) is planned to be signed only on the day/date of the gift transfer.
The question:
Is it allowed (I think yes), but is it somehow disadvantageous if the child already moves into the apartment now, i.e., before the gift transfer and rental agreement, and lives there rent-free for three months?
Are there any disadvantages regarding the tax authorities, the gift, the property valuation for the gift contract, or anything else? Or does it not matter at all?
Thank you very much!
Good luck
The usufruct value can be determined from the net rent of a rented apartment.
If the apartment is rented out to one’s own child at a very low rent, the usufruct value will initially be lower. When the apartment is gifted, the usufruct value is deducted from the property value for gift tax purposes. With a low usufruct value, the taxable gift value remains high. If this amount exceeds €400,000 (approximately $440,000), gift tax will be due (property value - usufruct value > €400,000 = gift tax). In such cases, the tax authority must be informed that the current net rent is not market-based, and a hypothetical market rent should be used to calculate the usufruct value. However, if the market value of the apartment is not significantly above €400,000, there is no issue.
If the apartment is rented out to one’s own child at a very low rent, the usufruct value will initially be lower. When the apartment is gifted, the usufruct value is deducted from the property value for gift tax purposes. With a low usufruct value, the taxable gift value remains high. If this amount exceeds €400,000 (approximately $440,000), gift tax will be due (property value - usufruct value > €400,000 = gift tax). In such cases, the tax authority must be informed that the current net rent is not market-based, and a hypothetical market rent should be used to calculate the usufruct value. However, if the market value of the apartment is not significantly above €400,000, there is no issue.
nordanney schrieb:
I can’t really see any disadvantage here. The apartment with the usufruct right is basically worthless since it cannot be sold anyway.That really depends on the location, especially where land value indicators are high. I recently worked through a calculation where an apartment with a market value of €400,000 still had a gift value of €240,000, even though the donor (the usufruct holder) was only 40 years old (major city with a ground value rate for the apartment location of €1,200/m2 (approximately $110/ft2)).Phew.
I understand that gift tax is owed if the value of the gift exceeds €400,000 (about $440,000). The rest of the explanations are not entirely clear to me.
For now, we just want to be sure and have peace of mind about whether the child can live in the apartment rent-free for 1-2 months before all the formalities (May/June), and officially register with the local authorities, meaning really move in already. Or if there might be any consequences, effects, or disadvantages later that we are not aware of.
Best regards
I understand that gift tax is owed if the value of the gift exceeds €400,000 (about $440,000). The rest of the explanations are not entirely clear to me.
For now, we just want to be sure and have peace of mind about whether the child can live in the apartment rent-free for 1-2 months before all the formalities (May/June), and officially register with the local authorities, meaning really move in already. Or if there might be any consequences, effects, or disadvantages later that we are not aware of.
Best regards
RomeoZwo schrieb:
That really depends on the location, especially in areas with high land value indices. I recently did a calculation example where an apartment with a market value of €400,000 still had a gift value of €240,000, even though the donor (holder of the life usufruct) is only 40 years old (major city with a land value index at the apartment’s location of €1,200/m² (110 USD/ft²)). Let me see if I understood this correctly:
By "even though" you mean that the long remaining life expectancy of the donor should normally result in a high usufruct value and therefore a low remaining gift value, right?
But in your example, this is not the case because of the "high land value."
Is that correct?
RomeoZwo schrieb:
For a rented apartment, the usufruct value can be determined based on the net rent.
If the apartment is then rented very cheaply to one’s own child, the usufruct value will initially be lower. For gift tax purposes, the usufruct value is deducted from the apartment’s value during the gift. A low usufruct value thus results in a higher taxable gift value.
...
... But the apartment is not rented at all. Not yet. In our case, wouldn’t the usufruct be calculated differently? Based on the apartment’s value itself? As mentioned, the apartment is only supposed to be rented after the gift, in 1-2 or 3 months. Not before.
S
saralina8731 Mar 2021 16:54Frischluft schrieb:
Let me see if I understood this correctly:
By "although," you mean that the long remaining lifetime of the donor actually results in a high usufruct value and therefore a low residual gift value, right?
But in your example, this is not the case due to a "high land value."
Is that right? Yes, basically.
Frischluft schrieb:
But the apartment is not rented out yet. Not at all. Will the usufruct then be calculated differently in our case? Based on the value of the apartment? As I said, it is planned to be rented only after the gift transfer, in 1 to 2 or 3 months. Not before. No, never based on the value of the apartment itself.
It is either based on the rent saved by using it personally, using comparable rents from nearby apartments, or on the actual rent if the apartment is rented out.
Similar topics