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
S
saralina8731 Mar 2021 23:07Frischluft schrieb:
No? Then I don’t understand the sentence. "However, I also see the need completely."
There are no siblings. Only one child.
If it is important:
The mentioned apartment still has an outstanding mortgage. The parents are the debtors. It would be necessary only if you are truly sure that you can save on taxes – but since you don’t provide any information about your financial situation, it’s impossible to assess from the outside.
All other reasons you mention could probably also be resolved through internal agreements without involving the land registry. I just don’t quite understand what advantages you would have in doing so.
Good morning 🙂
I don’t find usufruct unusual at all. I know many families where the inheritance per child exceeds €400,000 (approximately $430,000).
Legal differences between usufruct and right of residence:
- With the right of residence, the rights holders are allowed to live in the apartment. Once they move out for a period of X (typically 6 months), the right of residence expires. The recipient of the gift can then do whatever they want with the apartment.
- With usufruct, the usufructuary remains the economic owner. This means they are allowed to rent out the apartment and receive the rental income, for example, to cover nursing home costs later. However, the usufructuary is not allowed to sell the apartment. The owner can sell it, but the usufruct right remains in place and would transfer with the sale — which is why @nordanney says such a property is not easily saleable and is difficult to mortgage.
- Both rights are notarized and registered in the land register. The fees are the same in both cases, based on the value of the property being gifted.
Let’s take a hypothetical example:
Market value of the apartment €500,000 (approximately $540,000), of which the land value component is €100,000 (approximately $108,000), property yield 2%,
rental income from the apartment €15,000 (estimate based on apartment value), non-recoverable operating costs €2,000 --> net income €13,000 (approximately $13,900) per year,
age of the donor 60 years (female) --> capital factor 13.871,
Income value per year = net income - land value * property yield = €13,000 - (€100,000 * 2%) = €11,000
Capital factor = 13.871 --> usufruct value = capital factor * income value = €11,000 * 13.871 = €152,000
Gift value = market value - usufruct value = €500,000 - €152,000 = €348,000
You can already see that if the value of the apartment is significantly higher, the €400,000 limit is not that far off. The key factors are the net income (the higher, the better for the gift valuation) and the property yield or land value share of the apartment (the lower, the better).
If the recipient now wanted to take out a loan on the apartment, which is basically possible, the bank would only consider the gift value minus any second-ranking entries in the land register and the difficulties of auctioning due to the usufruct. That means the recipient would probably only get a maximum loan of about €250,000 at relatively unfavorable interest rates.
However, I assume the parents do not want the apartment to be mortgaged. In this case, a right of reclaim could be established in the event of mortgaging, meaning the parents can fully reclaim the apartment. Notary and land registry fees would apply again, but only if the reclaim actually happens! (Within the family, this is generally not expected).
I don’t find usufruct unusual at all. I know many families where the inheritance per child exceeds €400,000 (approximately $430,000).
Legal differences between usufruct and right of residence:
- With the right of residence, the rights holders are allowed to live in the apartment. Once they move out for a period of X (typically 6 months), the right of residence expires. The recipient of the gift can then do whatever they want with the apartment.
- With usufruct, the usufructuary remains the economic owner. This means they are allowed to rent out the apartment and receive the rental income, for example, to cover nursing home costs later. However, the usufructuary is not allowed to sell the apartment. The owner can sell it, but the usufruct right remains in place and would transfer with the sale — which is why @nordanney says such a property is not easily saleable and is difficult to mortgage.
- Both rights are notarized and registered in the land register. The fees are the same in both cases, based on the value of the property being gifted.
Let’s take a hypothetical example:
Market value of the apartment €500,000 (approximately $540,000), of which the land value component is €100,000 (approximately $108,000), property yield 2%,
rental income from the apartment €15,000 (estimate based on apartment value), non-recoverable operating costs €2,000 --> net income €13,000 (approximately $13,900) per year,
age of the donor 60 years (female) --> capital factor 13.871,
Income value per year = net income - land value * property yield = €13,000 - (€100,000 * 2%) = €11,000
Capital factor = 13.871 --> usufruct value = capital factor * income value = €11,000 * 13.871 = €152,000
Gift value = market value - usufruct value = €500,000 - €152,000 = €348,000
You can already see that if the value of the apartment is significantly higher, the €400,000 limit is not that far off. The key factors are the net income (the higher, the better for the gift valuation) and the property yield or land value share of the apartment (the lower, the better).
If the recipient now wanted to take out a loan on the apartment, which is basically possible, the bank would only consider the gift value minus any second-ranking entries in the land register and the difficulties of auctioning due to the usufruct. That means the recipient would probably only get a maximum loan of about €250,000 at relatively unfavorable interest rates.
However, I assume the parents do not want the apartment to be mortgaged. In this case, a right of reclaim could be established in the event of mortgaging, meaning the parents can fully reclaim the apartment. Notary and land registry fees would apply again, but only if the reclaim actually happens! (Within the family, this is generally not expected).
saralina87 schrieb:
Since you don’t provide any information about your financial situation, it’s impossible to assess from the outside An apartment worth more than 600,000 euros (about 640,000 USD) and an owner-occupied house. One child. Of course, we don’t know the remaining debts, but I assume the inheritance amount is well over 400,000 euros (about 426,000 USD).
Who owns the house and the apartment? Both parents have the 400,000 euro (about 426,000 USD) exemption each. It gets especially complicated with a joint will (also known as a "Berlin will")...
Frischluft schrieb:
...
Could you possibly give me a rough estimate (just for orientation) of what a notary service might cost?
Gift deed
vs.
Gift deed with usufruct right
Isn’t it roughly the same??Out of curiosity/interest, I would really like to know, what does a notary charge?What fees do they charge for a regular gift deed and for a gift deed that includes an agreed usufruct right?
Isn’t it about the same?
Good luck
Over the course of 8 pages, there have been all sorts of wild speculations, while many mistakes have already been made on your side. Which house in a rural area is worth €600,000 (about $645,000)? Why wasn’t it rented out, even though there are still outstanding debts? All the effort with the lease agreement, usufruct, and gift declaration is unnecessary. The debts need to be settled beforehand—who will assume and pay them. Financing is difficult for someone returning from abroad to acquire a property encumbered with usufruct rights. The value is below the threshold of €400,000 (about $430,000), so there are no gift taxes or inheritance taxes later on. Anyone can move in anywhere without a lease, without paying rent, and this will not have any impact in the future. And whether the house is handed over now, in 3 months, or in 3 years doesn’t matter.