Note: The following article is for general guidance only. For binding legal advice, we strongly recommend that you consult a specialised lawyer. We will be happy to put you in touch with the right lawyers in our region.
Property donation or sale: which is the better decision?
The transfer of property is one of the key decisions in wealth planning. Whether as a gift to your own children or through a sale to a third party - each option has its own specific advantages and disadvantages. While a gift is often favoured in a family context, a sale opens up economic and strategic opportunities. In this article, we explain the advantages and disadvantages of both options and provide a factual basis for making the best decision for your personal situation.
Giving property to children
Gifting a property to your own children is a popular option if the assets are to remain within the family. It offers numerous advantages, but also some challenges that need to be considered.
Advantages of a gift
Tax relief:
Children have a high gift tax allowance of €400,000 per parent within ten years. If the value of the property is within this limit, the gift remains tax-free. With early planning, this allowance can be utilised several times in order to gradually transfer larger assets.Avoidance of inheritance disputes:
By making a gift during your lifetime, you regulate the succession of assets clearly and bindingly. This minimises potential conflicts among the heirs, especially in the case of real estate, which often causes emotional ties.Lifelong right of residence or usufruct:
By registering a right of residence or usufruct, you can continue to use the property or benefit from the rental income, even if it no longer formally belongs to you. In this way, you can safeguard your quality of life and continue to benefit from the property.Transfer of assets with personal influence:
Unlike an inheritance, a gift allows you to directly experience how your children benefit from the property, whether through their own use or rental income.
Disadvantages of a gift
Claims to a compulsory portion:
If there are other heirs at a later date, they can claim a compulsory portion, which may be a financial burden for the children receiving the gift.Recovery rights and risks:
In certain situations, such as the insolvency of the children, gifts can be reversed. This harbours a risk for the long-term retention of the property within the family.Loss of freedom of disposal:
After the gift, you can no longer freely dispose of the property. Even in the case of usufruct or right of residence, changes such as a sale are no longer solely in your hands.
Sale of the property to third parties
Selling the property to external buyers can make economic and strategic sense, especially if you want to create financial leeway or relieve yourself of the responsibility of ownership.
Advantages of a sale
Financial flexibility:
The sale generates immediate liquid funds that you can use flexibly - whether for other investments, your own living expenses or to support your children in other ways.Avoidance of inheritance and gift tax issues:
The sale eliminates the tax burden that could arise in the event of a gift or inheritance. The sale price flows directly into your assets and is not subject to gift tax.Independence from family obligations:
In contrast to a gift, the sale to third parties is clearly finalised. There are no obligations towards the buyers, which increases your freedom of choice and flexibility.
Disadvantages of a sale
Loss of family assets:
With the sale of the property, a potentially valuable asset leaves the family. This could be regretted in the long term, especially if property values rise.Emotional attachment:
Property is often associated with memories and family traditions. A sale can be emotionally stressful, especially if the property has been in the family for a long time.Capital gains tax:
The sale of a property not used by the owner within the speculation period (ten years after purchase) may be subject to capital gains tax. This reduces the financial proceeds.
A calculation example
Here is a sample calculation that illustrates how a property gift or sale could be structured financially. We assume that the house has a market value of €850,000.
1. gift of property to children
Allowance per parent: 400.000 €
Children can receive a tax-free allowance of €400,000 from each parent within ten years. If both parents own the house and transfer it jointly, the joint tax-free allowance is 800.000 €.Tax-free gift:
With a property value of €850,000, €800,000 is covered by the allowances. The The taxable residual amount is € 50,000.Gift tax rate:
For children in tax class I, the tax rate for amounts up to €75,000 is 7 %. This results in the following tax:50,000 €×7%=3,500 €.50,000
Summary donation:
- Tax-free gift: 800.000 €
- Taxable portion: 50.000 €
- Gift tax: 3.500 €
- Total load: 3.500 €
2. sale of the property for €850,000
If you sell the house to a third party, there are other financial aspects.
Selling price: 850.000 €
Speculation tax (if applicable):
- If you sell a property that you do not use yourself within the speculation period (10 years after purchase), speculation tax is payable. This is based on your personal income tax rate and the profit from the sale.
- Example: If you bought the house 7 years ago for €600,000, the profit is €250,000. At a tax rate of 25 % would be 62,500 € Tax due.
- If you have owned the property for more than 10 years, speculation tax does not apply.
Receipt of the sales proceeds:
- After deducting incidental sales costs (e.g. estate agent's commission, notary), around 800,000 € net remain. These funds are available to you flexibly.
Sales summary:
- Gross proceeds: 850.000 €
- Speculation taxNot applicable for long-term ownership (more than 10 years).
- Net proceeds after costsApprox. 800,000 €
Comparison: Gift vs. sale
Conclusion: What is the best decision?
The choice between gifting a property to your children and selling it to a third party depends on your individual situation and objectives. A gift is particularly suitable if you want to preserve family assets and ensure long-term planning for your heirs. A sale, on the other hand, offers financial independence and flexibility.
In any case, it is advisable to seek professional advice. Tax advisors, lawyers and property experts can help you weigh up the pros and cons and find the best solution for your needs. We are happy to support you in making the right decision and can also recommend experienced specialist lawyers if required.
