Rights of possession and inheritance taxes
The following is a brief summary of the impact of rights of possession (= usufruct) that may sometimes be withheld:
- If a right of possession is the only inheritance you get, no inheritance tax is imposed on you.
- If you inherit property including the right of its ownership while someone else inherits possession rights to it, you must pay inheritance tax but its amount will be reduced. In other words, the tax base will be the inherited property’s value minus the possession right’s value.
The Tax Administration takes account of the withheld possession and carries out the above subtraction automatically, on the condition that the deed of the estate’s inventory contains adequate information about the possession rights.
Read about examples involving possession rights and their tax treatment in different circumstances on this page.
The surviving spouse’s right to keep living in the family home
If you are a widow or widower, you are entitled to withhold the possession right to the residential property where you lived together with your spouse. When you intend to continue living there, you should present a claim at the estate inventory meeting so the matter will be recorded either in the deed of inventory or in an enclosure to the deed.
Based on the deed of inventory, the Tax Administration carries out a reduction of inheritance tax due to withheld possession. The inheritance taxes will be reduced for those who are given the right of ownership to the residential property.
Rights left to you under the terms of the decedent’s will
It may be that the will contains instructions about the distribution of rights of possession. The decedent may have written a will that provides possession rights to the entire property left behind, or only to a specific part of the property, or to only a single item included in the estate.
If the will determines that you receive only the right of possession and no ownership:
- A record concerning this must be entered in the estate inventory deed or in a separate certificate of service related to the will.
- No inheritance tax is imposed on you for the received right of possession.
- A reduced inheritance tax is imposed on the inheritor who receives the right of ownership.
In some cases, a will may concern an agricultural farm for which there is no owner on record. Read more about how an inheritance is taxed if none of the inheritors receives any ownership rights to the property (only in Finnish or Swedish).
You already have rights of possession, which will continue after the property owner’s death
If you are a holder of possession rights to someone’s property during the person’s lifetime, this will remain in effect after their death.
Make sure that the following information is properly recorded on the deed of estate inventory or an enclosure:
- Identification of the property;
- A statement indicating that you currently have the possession, including your name and personal identity code, and
- Information on for how long time this is valid, and further information about the possession rights’ content as appropriate.
How does the Tax Administration calculate the possession right’s value?
When we assess inheritance taxes, we subtract the value of rights of possession from the value of the property concerned.
Valuation is affected by
- the fair market value of the property, i.e. its probable selling price on the decedent’s date of death
- a coefficient based on the person’s age who inherits the right of possession
- the average financial yields that can be received from using the property, per year
The calculation is based on the following:
Coefficient based on age × Fair market value × Coefficient based on annual yields.
If the holding of possession rights is determined only for a limited length of time, the calculation would contain a coefficient based on the right’s duration, replacing the coefficient based on the inheritor’s age. “Coefficients for fixed-term rights of possession” — Määräaikaisen hallintaoikeuden kertoimet, pdf, in Finnish and Swedish only)
The coefficient depends on the age of the person who inherits the right of possession.
| Age of the person receiving 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 years or older | 2 |
The coefficient depends on the type of property and is
- 3% for a summer cottage or other recreational real estate
- 5% for other property such as a housing-company apartment, residential house or a book-entry account.
Can the holder of a possession right disclaim it?
Regardless of whether you have a lifelong right or for a limited time only, you can disclaim your possession at any time.
However, if the owner of the property pays no consideration to you in exchange for your disclaiming your right of possession, you are treated as having given a gift to the owner. Accordingly, the owner must submit a gift tax return and pay gift tax. For more information, see related instructions
In the reverse case, if the owner of the property pays you an amount of money or gives you some other assets in exchange for your disclaiming a right of possession you have had, you are treated as having received a capital gain for which you must submit a tax return and pay tax. For more information, see Capital gains and losses (in Finnish or Swedish)