Value of the right of possession in gift taxation

The value of the right of possession depends on for how long the right is retained – for life or for a definite period.

If you receive a gift to which the right of possession is retained by the donor, you must state this in your gift tax return. The Tax Administration deducts a formal value reflecting the value of the possession right from the gift's value. This reduces the gift tax.

When the right of possession is retained for life

The Tax Administration valuates the right of possession and makes a deduction on your behalf. 

The following calculation formula is used:

age coefficient × yield coefficient × fair market value of the gift
= value of the possession right

Coefficients for age and yield

The age coefficient depends on the age of the person who is given the right of possession.

Age coefficients table

Age of the person receiving the right of possessionAge coefficient
less 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

The yield coefficient depends on the type of property and is

  • 3% for a leisure home, such as a summer cottage
  • 5% for other property, such as shares in housing companies, real property for living purposes and book-entry accounts.

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 retains the right of possession to the summer cottage. 

The value of the right of possession is age coefficient 6 × yield coefficient 3% × fair market value €300,000 = €54,000. This is deducted from the fair market value of the gift. 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 €29,000 in 2018 (tax bracket 1).

When the right of possession is retained for a definite period

The Tax Administration valuates the right of possession and makes a deduction on your behalf. 

The following calculation formula is used:

yield coefficient × coefficient for fixed-term right of possession × fair market value of the gift
= value of the possession right 

The yield coefficient depends on the property and is

  • 3% for a leisure home, such as a summer cottage
  • 5% for other property, such as shares in housing companies, real property for living purposes and book-entry accounts.

Määräaikaisen hallintaoikeuden kertoimet, (pdf) ("Coefficients for fixed-term right of possession", in Finnish and Swedish only)

Note: If the coefficient for the fixed-term right of possession is greater than the age coefficient according to the right of possession retained for life, the right of possession is determined based on the age coefficient.

Example of the right of possession retained for a definite period: Antti gives his son Mika an apartment worth €150,000. Antti's age is 75. He retains the right of possession for himself for five years. 

The value of the right is yield coefficient 5% × coefficient for fixed-term right of possession 3.99 × fair market value €150,000 = €29,925. This is deducted from the fair market value. The result is the taxable value of the gift.

The taxable value is €120,075 (€150,000 minus €29,925). Gift tax on a gift worth €120,075 is €12,500 in 2018 (tax bracket 1).

Do you wish to give up the right of possession? Read more: Giving up the right of possession

Frequently asked questions

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.

Instructions for filing and payment

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