Transferring real estate – What you should know

Older property owners often face the question of what should happen to their property when they are no longer around. Inheritance is a common way to pass the property on to their descendants. A gift, on the other hand, transfers the property to others while the current owner is still alive. We'll tell you what you need to know about this topic.

The reasons that motivate owners to transfer their property during their lifetime vary. Some owners want to save their descendants inheritance tax, while others want to supplement their retirement income. The latter is possible if the property is transferred in exchange for a maintenance payment. Before the transfer can take place, the property's value must first be determined. This valuation is usually carried out by the local tax office. Individual characteristics of the property are not taken into account in this process. Owners can also have the valuation carried out themselves by a certified appraiser. This is always worthwhile if the property's specific features, such as a dilapidated roof, would result in a lower assessed value. This is important for the tax-free allowance.

If you, as the owner, live in your property with your spouse and have no other children, gifting it is always preferable to inheritance. This is because the tax-free allowance for gifts of owner-occupied property is relatively high for spouses. If you do not live in the property with your spouse or wish to gift it to other children, different tax-free allowances apply. These depend on the value of the property and the degree of kinship.

A new individual tax-free allowance is established every 10 years. Gifts to spouses are tax-free up to €500,000. Gifts to children are tax-free up to €400,000. Gifts to grandchildren are tax-free up to €200,000. Gifts to grandparents and parents are tax-free up to €100,000, and gifts to all other persons are tax-free up to €20,000. Especially if your property is still encumbered with debt, you should refrain from making a gift, as the recipient automatically assumes the debt. An inheritance could still be disclaimed after your death if the liabilities are too high.

If owners decide to continue living in a property after gifting it to someone else, they can secure a right of residence. This right can then remain in effect until their death. The original property owner should also include a right of reversion in the gift agreement. This prevents serious consequences in the event of unforeseen circumstances. The reversion clause can stipulate that ownership reverts to the original owner in certain cases. This can be helpful if the recipient predeceases the donor, becomes insolvent, or loses their legal capacity.

Are you considering gifting your property and want to know beforehand if it's worthwhile? Contact us! We'd be happy to advise you.

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

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