Give away a portion of your house or apartment to double the ROT deduction

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PwC-skatteradgivning-House-1-solid_0001_maroonIf you are the sole owner of your home and plan to undertake a major renovation of the premises, it can be appropriate, in certain cases, to give a portion of the apartment or home as a gift to your husband/wife or cohabitant as you can make, each of you, a ROT deduction of a maximum of SEK 50,000. Before making such a gift of a portion of your residence it is, however, important to ensure that no undesirable tax or family law consequences arise.

The so-called ROT deduction (tax deduction for repairs, maintenance or conversion and extension work) is granted for labour costs arising in conjunction with reparations, maintenance and rebuilding and extensions of tenant owner apartments. The maximum tax deduction is, as earlier, SEK 50,000 per person and year. However, on 1 January 2016 the amount of the subsidy was decreased from 50 percent to 30 percent, which implies that labour costs must amount to at least SEK 166,667 for the maximum amount of deduction to apply in 2016.

An ownership portion is a requirement to be able to make the ROT deduction

Individuals turning 18 at the beginning of the year, and who either own a small house or a tenant owner apartment where ROT work has been undertaken, can be granted a tax deduction. Prior to more extensive reparation or rebuilding measures, it could be advisable that the individual comprising the sole owner of the residence turn over a portion of the house or apartment as a gift to his/her wife/husband or cohabitant as, in such a case, both of the partowners have the possibility to make a ROT deduction. The making of the gift can, simply put, double the amount of the ROT deduction. However, prior to making a gift it is important to ensure that no undesirable tax or family law consequences will arise.

No tax consequences from making a gift

The major rule is that a straightforward gift does not result in any tax consequences for either the giver or the recipient. Neither does an individual who has acquired property through a gift need to pay stamp duty in conjunction with their application for a title deed. The individual who has previously sold a private residence with a profit, and in conjunction with this was granted tax deferment, must, however, remember that a gift of an entire or portion of a new residence implies that the previously deferred tax must entirely, or partially, be reversed for taxation.

Don’t forget to consider civil law and family law implications

In conjunction with a gift, one must take a position as to who is to be responsible for the payment of any possible loans on the property and one must investigate the family law consequences of jointly owning the residence. For example, for jointly owned property the major rule is that all decisions regarding the property must be taken by the two individuals completely unanimously, regardless of how large or small the portion owned by the other partowner – which is something to consider in the event of a possible future separation! One should also decide as to whether any possible family law documents, such as premarital agreements and wills, need to be updated in the context of this new situation.

It is also important to ensure that all formalities are attended to. In addition to preparing a deed of gift and applying for a title deed, it is also important to remember that a gift between a married couple must be made public through registration in the marriage register in order that such gift is legally valid vis á vis a third party.

In summary, it could be a good idea, prior to major renovation work, to transfer a portion of the apartment or house to a husband/wife or cohabitant in order that both individuals can have the possibility of making a ROT deduction. However, in order to avoid being hit by unpleasant surprises, it is important to first investigate tax and family law effects and also obtain assistance in preparing the necessary formal documents.

Do you have any questions on entrepreneur and SME Taxes?
Jan Schütz

Jan Schütz

Jan Schütz arbetar som jurist på PwC:s kontor i Jönköping med frågor om civilrätt och bolagsrätt i samband med omstruktureringar, ägarskiften och andra transaktioner.
010-212 52 30
Jan Schütz works at PwC’s office in Jönköping with issues relating to company law.
+46 10 212 52 30

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