Right of possession and rental income declarations

The owner of a property does not always have right of possession. For example, a gift can be given without surrendering right of possession.

With right of possession comes the right to use the property and make a profit on it by means of letting, for example.

Types of right of possession:

  1. Usufruct based on a will.
  2. Widow’s right of possession to their deceased spouse’s estate. Rental income or other income from property counts as the widow’s taxable income. The widow must declare rental income and expenses in their tax return.
  3. Right of possession that the giver of a gift has retained for themselves. The giver of the gift is also entitled to any rental income from the property. The giver of the gift must declare rental income and expenses in their tax return based on their right of possession.

Example: Liisa has gifted a flat to her daughter, Maija, but retained right of possession. The flat has been let out. Liisa has collected the rent and paid the associated expenses. Liisa declares the rental income and expenses in her tax return.

Example: Hannu and Leena are a married couple who co-own a rental flat. Hannu dies. Hannu and Leena had a so-called mutual right of possession will that covers all their joint property. The will gives Leena possession of all the assets of the estate. Leena is entitled to all the income from the rental flat and is responsible for all the expenses. Leena declares all the rental income and expenses in her tax return.

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