Lifetime right of residence for parents.
July 14, 2015 | 35,00 EUR | answered by StB Patrick Färber
My wife and I are going to buy a condominium. Originally, we wanted to grant her parents a lifelong right of residence in this apartment in the land register without any compensation. However, we have now found out that this would incur gift tax. Based on the rental index and the age of the in-laws, the right of residence would have a value of approximately €100,000 according to our calculations.
The in-laws are willing to pay us a certain amount as compensation for the lifelong right of residence. What would be the tax consequences if we were to enter into a contract with the in-laws as part of the purchase and registration of the right of residence in the land register, in which we agree that they will pay us €100,000 for the right of residence? Presumably, no gift tax would then be incurred. However, would we have to declare the €100,000 as income instead (in a way, it is a one-time rent payment)?
Considering the tax-free allowances, how low could the payment from the in-laws be without incurring gift tax?
Dear inquirer,
Your inquiry and your situation are not suitable for an online consultation. Please make sure to contact a local tax advisor/lawyer with the relevant expertise.
However, I am happy to provide you with some guidance or a starting point for an on-site consultation:
1) Gift
You are absolutely right in recognizing that this is a taxable gift. In the case of joint acquisition of the property by both of you (both spouses), each spouse gifts TEUR 25 to each (in-law) parent (assuming the calculation of TEUR 100 for the right of residence is correct, which I cannot verify). The tax-free allowance for this is TEUR 20, applicable tax class II, tax-free allowance TEUR 20 per gift. There will be TEUR 5 left as a gift, tax rate 15% = gift tax EUR 750 x 4 gift transactions.
2) Partially paid acquisition
If you pay less than the market value, but not in a way that constitutes a gift, for example TEUR 5 per gift transaction, the calculation would be: Value TEUR 25 - payment TEUR 5 = TEUR 20 minus tax-free allowance TEUR 20 = 0, no gift tax. However, you have acquired a right of residence partially paid and you are correct in assuming that this constitutes rental income.
3) Fully paid acquisition
If you pay the full value (TEUR 50 per spouse), then you also have rental income in this amount, but you may be able to spread the income over 10 years.
Google the keywords "usufruct decree" and "paid acquisition" for more information. I believe there is something about point 3) in paragraph 30 of the decree.
As you can see, it is a calculation example that needs to be calculated precisely considering your personal circumstances. This also applies to the value of the right of residence.
I hope I could provide you with a suitable orientation/starting point for your situation. Make sure to seek advice before moving on to the notarial part.
Best regards
Tax advisor Patrick Färber
