Disadvantages of gifting property: what to know beforehand

Anyone who wants to pass a house or building plot on to their children mostly hears about the advantages. Yet the disadvantages of gifting property are just as important to know beforehand. A gift is final, you pay the tax immediately, and a later sale no longer runs through you alone. This article sets out what you give up and what sellers run into afterwards.

A gift of property is final

Unlike a will, which you can adjust until your death, a gift is in principle irrevocable. What you give away today does not come back by itself. The law provides only a handful of exceptions, such as a gift between spouses made outside a marriage contract.

That final character weighs more heavily than many people estimate at the time. A family situation changes. A son or daughter divorces, runs into financial difficulty, or a disagreement arises. The property is then already part of an estate over which you no longer have any say.

On top of that, a gift of property must always go through a notarial deed. That is a legal requirement and there is no cheaper alternative. So on top of the gift tax you also pay the notary's fee, the deed costs and the registration. For an average home that quickly adds up to several thousand euros, before a single cent of tax has been paid.

Anyone in doubt is usually better served by calculating first than by signing quickly.

You hand over control, even with a reserved usufruct

Many parents gift the bare ownership and keep the usufruct. They may then continue to live in the property or keep collecting the rent until they die. That arrangement feels safe, but it only half solves the control problem.

As a usufructuary you may use the property and keep the income from it. You may not sell it on your own. For a sale in full ownership you need the signature of all the bare owners. If that means three children, you need three agreements, including on the price and on the moment of sale.

Major works are a second sore point. Ordinary maintenance is for the usufructuary, but structural repairs are in principle for the bare owner. Who pays what towards a new roof or a new boiler regularly leads to discussion in practice, certainly when the children are short of money themselves.

And there is one more risk that rarely comes up. Your child's creditors can seize the bare ownership. The home you live in then ends up in proceedings to which you are not a party.

You pay the gift tax immediately, not later

With movable assets there is still a choice: have a hand-to-hand or bank gift registered, or not. With property that choice does not exist. The notarial deed is registered and the gift tax is due, even if you go on to live another twenty years.

The rates are progressive and rise per bracket. They also differ per region and depend on your tax residence, not on where the property is located. Someone who lived longest in Flanders over the past five years falls under the Flemish rates, including for an apartment on the coast or a house in Wallonia.

A second point of attention is successive gifts. If you gift a second property to the same person shortly afterwards, both gifts are added together for the calculation of the brackets. The second one then no longer starts at the bottom of the rate, but on top of the first. Spreading gifts over time can bring the bill down, but only if you respect the statutory period. That period differs per region and has been adjusted in recent years, so have your notary confirm it before you plan a second deed.

Finally, a gift continues to play a role after the deed in the event of a later death. If the death occurs within the statutory period after the gift, the value given away is taken into account to determine which brackets the inheritance tax on the rest of the estate falls into. The gift itself is not taxed again, but it does push the remaining estate higher. That period is also set per region and has recently changed, so go by the rules that apply at the time of the deed.

Selling a gifted home becomes more complicated

This is the disadvantage sellers most often only run into afterwards. Once ownership is split between a usufructuary and one or more bare owners, no sale is possible at all without everyone signing. One child who holds back or is unreachable abroad is enough to bring the file to a standstill for months.

Pricing also becomes more sensitive. The proceeds have to be divided between the usufruct and the bare ownership according to a conversion table that takes the age of the usufructuary into account. Parties who disagree about the value rarely resolve it on their own. A well-founded valuation beforehand takes a lot of the discussion away. You can have a free valuation of your home carried out without obligation.

A home with a split ownership structure also sells more slowly. Prospective buyers and their bank want certainty about who signs, and an estate agent who has handled such a file before works noticeably more smoothly. So it pays not to take the first one you find. Through IMV you can compare up to three accredited agents from your municipality, free and without obligation.

Sometimes selling is the simpler route

A gift is not by definition a bad idea. Anyone who starts well in time, has a clear family agreement and mainly wants to avoid inheritance tax usually comes out better with a well-guided gift than with doing nothing.

But it is not the only route. Selling and then gifting the proceeds is simpler in some families. You keep control over the moment of sale and the price, and what you then give in money falls under the much lower rates for gifts of movable assets. A will, a survivorship clause or a purchase split into usufruct and bare ownership may also suit your situation better.

Which route is most advantageous depends on your age, the number of children, the value of the property and the region where you live. A notary works through the tax side. For the value and the saleability of the property itself you are better off with someone who knows the local market. You can compare estate agents in your area without obligation here to get a realistic picture of that.

What to do before you decide

Put the figures side by side before you sign anything. Ask the notary for a calculation of the gift tax in your region, including deed costs, and compare it with what your heirs would pay if you do nothing. Also have the property valued, so that you work with a real amount and not with a feeling.

Then discuss it openly with all the children. Most problems with a gifted home are not tax problems but family ones. A gift that everyone understood beforehand gives far less cause for discussion years later than a surprise at the notary's office.