Sale or a gift of real estate?

When real estate is transferred from a private individual to a related party, an assessment is made as to whether the transaction is to be considered to comprise a purchase or a gift, based on the tax assessment value of the property. If the real estate has been changed since the most recent tax assessment, the Tax Agency is of the opinion that the assessment of purchase or gift is to be made based on the tax assessment value which would have been assigned the property as of the date of transfer.

The transfer of real estate is classified in fiscal terms as a sale or gift on the basis of the tax assessment value of the property applying a so-called “overriding purpose principle”. If property is transferred at a price which is lower than its tax assessment value and with a gift intention then such a transfer is usually considered to comprise a gift. In such a case, the transferor is not taxed for the compensation.

The tax assessment value for the year in which the transfer takes place is to be applied in comparing the amount of compensation with the tax assessment value. However, the Tax Agency, in a position paper, has stated that the determined tax assessment value is not to provide the basis for comparison if an event has taken place prior to the transfer which would result in a new tax assessment value being determined in the following year’s tax assessment. In such a case, the comparison is, instead, to be made against the tax assessment value which would have applied considering the characteristics of the property at the time of the transfer.

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This position should be seen in light of the increased interest in real estate transactions and their effects, see previous blog postings regarding "gåvotransaktioner till aktiebolag", the sale of packaged real estate, and the current "paketeringsutredningen" which were announced last week.

Individuals who have executed, or who plan to execute, a gift transaction should seek confirmation as to whether the tax assessment value of the property has been correctly calculated. If a change has taken place in the property which would imply that the tax assessment value will change in a new tax assessment, this could impact the taxation and how the transaction is to be reported in the income tax return. Examples of such changes include changes in the land area, if a building has been erected or torn down or if there has been a sale of felling rights on the property.