Inherited property becomes building land.
- A. inherited a plot of land (15,000 m2) together with his brother M. from their father four years ago.
- Currently, A. is the sole owner of the plot of land after the estate community was settled through division by partition.
- The plot of land was previously farmland, but is now likely to be designated as building land. The municipality wants to purchase the land at a fixed price of 43 € per m2 (undeveloped), compared to a market price of 200 € per m2 (developed).
- The increase in value will be approximately from 6 € to 43 € per m2 upon sale to the municipality.
- As an option, one third of the plot of land (excluding 30% of the area for infrastructure, i.e. 5000-1500 = 3500 m2) can be retained and sold on the market. This will not be the original land in the previous ownership, but will be exchanged somewhere within the project area. Expected market price is 200 € per m2 minus development costs of 40€.
QUESTION 1: Is it correct to assume that the increase in value for the sale to the municipality is tax-free, because neither the date of inheritance nor the date of partition count, but rather the acquisition date of the deceased, which is more than 10 years ago?
QUESTION 2: Is it correct that if the option is exercised, the exchanged plot of land when sold at 200€ will not have a taxable increase in value, because the exchanged part will have the same value as the outgoing plot of land, namely the higher free-market value?
QUESTION 3: The plot of land to be exchanged is subject to real estate transfer tax (6% in North Rhine-Westphalia!). What price is used as the basis for assessment? Sale price - development costs?
The case now becomes even more complex:
- A and M have informally agreed that M should own half of the field, despite A's formal sole ownership status.
QUESTION 4: How can this be realized in a tax-efficient manner? Is the following correct or is there a more favorable solution?
a) Gifting half of the plot of land to M before the sale to the municipality. Can this still be done at the farmland price, since the deal with the municipality is foreseeable but not guaranteed? After deducting the tax-free allowance, only 25,000 € would be subject to tax at 15% (3,750 €). The gift between siblings is exempt from real estate transfer tax. However, M would then have to pay tax on the capital gain when selling to the municipality (25% of 277,500 € = 69,375 €). If he also exercises the option, would this part be considered a capital gain, based on the difference between the farmland price of 6€ for the "raw" plot of land and the achieved market price for the resulting sales area?
b) B is not directly involved in the plot of land transactions, but receives 50% of all the income that A earns, reduced by costs and taxes, as a gift.
