Gift and right of possession
When you give a summer house, a dwelling or other property to someone, you may want to retain the right of possession.
Because the gift recipient's opportunities to use the gift are restricted when the right of possession is retained, the tax to be paid by the gift recipient is smaller.
The recipient must fill out a gift tax return stating that the donor retains the right of possession. The Tax Administration calculates a formal value for the possession right and deducts it from the gift's value. This deduction reduces the amount of gift tax.
What does a right of possession mean?
Donors can retain the right of possession for themselves or for someone else. The right of possession may be held by one or more people.
The right of possession means that the donor or whoever is given the right of possession
- can use the property that was donated
- receives the revenue generated from the property (e.g. rental income)
- pays the fixed expenses relating to the property, such as the real estate tax or maintenance charges, but
- cannot sell or transfer the property or a privilege associated with it (such as the rental right) to someone else without the gift recipient's consent.
No gift tax is imposed on the person for whom the right of possession is retained, not even if the person is someone else than the donor.
When you receive a gift to which the right of possession is retained
If the right of possession to a gift you receive is retained for the donor or for another person
- you are the new owner of the property
- you pay less gift tax because you have restricted opportunities to use the gift without the right of possession
- you are unable to sell the property unless the holder of the possession right gives their consent to the sale.