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When you make a gift of property to someone — for example, you donate a summer house, a residential apartment or other immovable property — you may want to retain the right of possession. Alternatively, you can transfer the right of possession to a third party. In these circumstances, the recipient of your gift becomes entitled to a deduction from their gift tax due to retained possession rights.
Several synonyms are used: right of possession, access right, usufruct, liferent, dower, easement, usufructual rights, and others.
It is the responsibility of the donor to determine the exact nature of the rights that the donor decides to keep.
You are entitled either to keep the right of possession to yourself or to transfer the right of possession to a third person. The right of possession may be held by one or more people.
The right of possession means that the donor or the third party having the right
In situations where the right of possession goes to a third party, no gift tax is collected from that person although he or she is the beneficiary of the right.
When a gift comes with the right of possession kept by the donor or transferred to someone else,
When you complete your gift tax return, please indicate that the right of possession to the gift is retained.
The Tax Administration will calculate a formal value for the possession right and deduct it from the gift’s value. This reduces the amount of gift tax.
The value depends on for how long the rights continue to be kept – for life or for a limited period.
If there are more than one persons who keep the right of possession concerning the property, the years of age of the youngest one of these persons will determine the value.
The Tax Administration will first perform a valuation concerning the right of possession, and then calculate a tax deduction on your behalf.
The calculation is based on the following:
Age coefficient × Yield coefficient × Fair market value of the gift = Value of the possession right
The coefficient depends on the age of the person who keeps the right of possession, or the age of the person the right of possession is transferred to, as the case may be.
| Age of the person keeping possession | Age coefficient |
|---|---|
| Younger than 44 | 12 |
| 44–52 years | 11 |
| 53–58 years | 10 |
| 59–63 years | 9 |
| 64–68 years | 8 |
| 69–72 years | 7 |
| 73–76 years | 6 |
| 77–81 years | 5 |
| 82–86 years | 4 |
| 87–91 years | 3 |
| 92 or older | 2 |
This coefficient is either determined by the actual profits that the property can generate, or alternatively, based on formula-based percentages of economic yield. In situations where it is impossible to ascertain the property’s annual yields, the following percentages are applied:
Example of the right of possession retained for life: Antti gives his son Mika a summer cottage worth €300,000. Antti's age is 75. Antti decides to keep the possession rights.
The value of the rights is: Age coefficient 6 × Yield coefficient 3% × Fair market value €300,000 = €54,000. This amount will be deducted from the summer cottage’s fair market value. The result is the taxable value of the gift.
The taxable value is €246,000 (€300,000 minus €54,000). Gift tax on a gift worth €246,000 is €28,800 in 2026 (tax bracket 1).
The Tax Administration will first perform a valuation concerning the right of possession, and then subtract the resulting value from gift value.
The calculation is based on the following:
Yield coefficient × Coefficient for limited-period possession × Fair market value = Value of the possession right
The coefficient representing economic yield is either determined by the true yields or profits that the gifted property can generate, or based on formula-based percentages of yield. In situations where it is impossible to define an actual, true size of the yield, the following percentages are applied:
“Coefficients for limited rights of possession” — Määräaikaisen hallintaoikeuden kertoimet, (pdf, in Finnish and Swedish only)
Määräaikaisen hallintaoikeuden kertoimet (pdf, in Finnish and Swedish only)
Note: If the coefficient for right of possession for a limited period is greater than the coefficient representing the age of a person (when possession rights are kept “for life”), the tax calculations are conducted using the latter.
Example of the right of possession retained for a limited period: At a date that falls within the 2026 year, Antti gives his son Mika an apartment worth €150,000. Antti's age is 75. He retains possession for 5 years, until his 80th birthday.
The value of the right of possession: Yield coefficient 5% × Coefficient for limited possession 3.99 × Fair market value €150,000 = €29,925.
The amount of €29,925 is deducted from the apartment’s fair market value. The result is the taxable value for purposes of gift tax.
The taxable value is €120,075 (€150,000 minus €29,925). Gift tax on a gift worth €120,075 is €12,300 in 2026 (tax bracket 1).
Retained rights of possession cease automatically when the holder passes away. Correspondingly, rights retained for a limited period cease automatically at the end date of the period.
If the holder has the right “for life” but decides to give up that right during his or her lifetime, it is regarded as a new taxable gift in the hands of the gift recipient.
After the holder has given up their possession right, both the right of ownership and the right of possession will belong to the gift recipient.
Yes, when the holder gives up the right, it is a taxable gift because in the original assessment of gift tax, the amount was reduced due to the fact that the right of possession was kept. The new owner of the property – the gift recipient – needs to pay gift tax because he or she becomes the full owner, now owning the property with the rights of possession as well.
When the holder decides to give up the right of possession, it is treated as a gift received by the gift recipient, i.e. the new full owner of the property.
The value of the gift is dependent on the value of the right of possession on the day when the right is given up. This means that the start date for calculating the value of the right of possession is not the date of the original gift when the property’s value may have been lower. Instead, the gift tax will be based the value of the day when the right is given up.
Valuation of possession rights is affected by:
If two or more persons have the right of possession and they all decide to give up their rights, the age coefficient for tax calculation is the one representing the years of age of the youngest person.
Example of giving up the right of possession “for life”
In 2021, Antti gave his grandson Mika a summer cottage, but kept its right of possession to himself for life. However, in 2026 as he turns 80, he decides to give up the right. At that time, the summer cottage’s fair market value stands at €350,000.
The value of the possession right is: Age coefficient 5 × Yield coefficient 3% × Fair market value €350,000 = €52,500. Now being the full owner of the summer cottage, Mika must pay the gift tax. Gift tax on a gift worth €52,500 is €4,250 in 2026 (tax bracket 1).
The donor can retain the right of possession for him- or herself or for one or more other people.
Example: Antti gives a summer cottage to his grandson Mika, who is the son of his daughter Liisa. Antti declares that he wants to retain the right of possession. This means that the right of ownership transfers to Mika but the summer cottage continues to be in Antti's use. If Liisa also uses the cottage, Antti may decide to retain the possession right both for himself and for Liisa. As in the first case, the right of ownership transfers to Mika, but Antti and Liisa have the right of possession.
Retaining the right of possession reduces the gift tax.
Because the recipient's opportunities to use the gift are restricted, the Tax Administration calculates a value for the right of possession and deducts it from the fair market value of the gift. In other words, the basis of gift tax is the fair market value from which the value of the possession right has been deducted.
The person who retains the right of possession is required to actually use the property or receive the revenue generated from it. It is not allowed to retain the possession right only to reduce the gift tax.
Example: Antti donates a single-family house to his daughter Liisa but retains the right of possession. However, Antti does not live in the house, and neither does he receive rental income from it. Liisa moves in with her family, so in fact it is Liisa who exercises both the right of ownership and the right of possession. Because Antti's right of possession is not backed up by the actual circumstances, Liisa is not entitled to a right-of-possession deduction in gift taxation.
Draw up a deed of gift. The deed should contain a clause stating that the right of possession to the gift is retained. You should also state for whom the right is retained and for how long – whether it is for life or for a definite period. If you choose the latter alternative, state the end date of the period.
There is usually no need to submit a deed of gift to the Tax Administration. The instructions for completing a gift tax return contain a list of the circumstances that make it mandatory to enclose a deed of gift or other documentation with the gift tax return. Instructions for completing a gift tax return form
When you fill in the return, enter the fair market value of the gift and state that the right of possession or the profit right or some other right to the gift is retained. This does not affect the gift's fair market value but it changes the basis on which the gift tax is assessed.
The meaning of “right to the gift is retained” is that the gift-giver continues to use the property and/or receive any profit that the property produces. There may also be another type of right, which the giver determines and decides to retain, or keep.
Several synonyms are used: right of possession, access right, easement, usufruct. The giver of the gift must determine the exact nature of the right that will be retained.
When you relinquish the rights that you previously had, at the time when the apartment is sold, the taxes depend on your current circumstances:
Key terms: