1. Starting Point
When passing on real estate, there are generally several ways to do this aside from “simply” selling it. It is often the case that real estate is also transferred (not just within the family) in one of the following ways:
- The real estate is sold in return for an annuity payment.
- The real estate is sold in return for a purchase price payable immediately and a lifelong right of use for residential purposes.
In this article, we address the second option (retention of the right of use for residential purposes) from the perspective of real estate transfer tax.
2. Underlying conditions for real estate transfer tax
Real estate transfer tax is applicable when selling real estate. The tax must be calculated on the basis of the consideration paid, but the basis must be at least equivalent to the value of the real estate.
In the event of a sale, the consideration consists of the purchase price including the other services assumed by the buyer and the uses reserved for the seller (section 5 para. 1 (1) of the Real Estate Transfer Tax Act [GrEStG]).
3. Assessment basis of the GrESt – amount of the consideration
The purpose of the provision of section 5 para. 1 (1) GrEStG is to make the real estate transfer tax applicable to the benefit accruing to the seller from selling the real estate. From an economic point of view, contractually retaining a right of use for residential purposes constitutes a benefit for the seller. This benefit also normally means that the buyer will consider the right of use for residential purposes in the (lower) purchase price offered by him.
The Federal Finance Court (BFG) has now ruled, e.g. in RV/2100241/2017, that retained rights of use for residential purposes are to be considered reserved uses as defined by section 5 para. 1 (1) GrEStG, thus part of the consideration, and are to be included into the assessment basis. The BFG holds the view that the “economic purchase price” is therefore made up of the agreed, reduced purchase price, adding the value conferred by the reserved right of use for residential purposes.
Rights of use for residential purposes are measured according to the annuity valuation rules of section 16 para. 1 of the Valuation Act (BewG) on the basis of the net present value of lifelong uses and benefits.
The actual amount of real estate transfer tax owed is therefore:
+ value of the right of use for residential purposes
= Assessment basis
x 3.5 % or on a sliding scale within the family
= Real estate transfer tax
TPA Tip when selling real estate:
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