Note: the real estate acquisition tax has been abolished, and the relevant date in this regard is 31 March 2020. For more information, see the article Abolition of Real Estate Acquisition Tax.
Procedure of giving real estate as a gift
The alpha and omega is always a correctly written Gift Agreement. The word “correctly” is not used at random. All it takes is a small mistake and it can prolong the whole process or even stop it completely. It is ideal if you consult with an expert about writing a Gift Agreement.
It is also necessary that the signatures on the contract be verified by a notary, attorney or employee of Czech Point. The only exceptions are those who have their signature stored as a model directly in the Land Registry. In such a case, it is not necessary to verify the signature. The contract must then be delivered together with the completed proposal to the Land Registry, which will make a change in the registration. From 1 January 2020, the fee for a proposal to the Land Registry is 2 000 CZK.
The most common mistakes in the Gift Agreement
You may be thinking now that there is nothing difficult to creating a contract. So why to contact an expert? Well, believe or not, even the most attentive can overlook some of the many details. Transfers often include several Certificates of Title, which include not only the buildings themselves but also the land. Each part must then be explicitly identified in the contract and transferred to a new owner. If the correct description is not made, the damage can be really earth-shattering! For example, as in the case of Mrs. Kamila, who completely lost her property due to a bad proposal registration.
Although the new Civil Code contains the principle of ‘superficies solo cedit’ (translated as the surface retreats ahead of the land, thus that the building is part of the land), in reality however, houses and land often consolidate gradually. Sometimes the house does not have to be part of the land, which in the case of an incorrect treatment in the contract leads to an error in the form of a gifted land without a house, or the other way around, a house without land.
In the contract, it is always necessary to treat not only the family house or apartment, which is primarily the case, but also the gift giving of the land.
Real Estate Purchase or Sale
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Who pays the income tax?
Usually, it does not end with the transfer of the real estate. The donee still has to resolve his financial obligations to the state, which may arise from the acquisition of real estate. The gift tax has not been applicable to the recipient since 2014, however, the acquisition of real estate is not completely free.
The gift tax was replaced by the income tax that the donee should pay. However, in determining this fee, the family relationship of the donee and the donor is taken into account. If the real estate “stays in the family”, the donee is also exempt from this fee. If the donee is not a close person (a relative in the first or second degree, or a partner living in the same household for at least one year) or does not meet any other necessary conditions,then the value of the property must be included in the tax return, (it will be necessary to have an estimate of the market price real estate made), and taxed together with other income. When acquiring real estate worth five million or more, it is always necessary to notify the Tax Office regardless of whether there is an obligation to pay income tax or not.
Real estate gift giving and inheritance proceedings
If the donor dies within three years of the transfer of the property, this fact may be reflected in the subsequent inheritance proceedings. The donated property is included in the obligatory part of the inheritance. If the share of the inheritance is subsequently lower than the value of the donated real estate, no claim will arise for the next estate. As an example, we can mention three siblings, one of whom received a family cottage as a gift. The parent who donated the cottage will subsequently die, leaving behind a legacy worth 600 000 CZK. By standard practice, each of the siblings would inherit a share of 200 000 CZK, but because one of them received a cottage of a much higher value, only the other two siblings will share the legacy.
Curiosities in the gift giving of real estate
Cases where a widowed grandmother decides to gift the property to her favorite grandson without going to live there are an ideal model. In practice, however, we encounter these cases rather rarely.
Much more often, we encounter transfers in which there is a mortgage, a share in a cooperative or a lien. How does the gift giving of real estate in whole or in part proceed in such cases?
Gift giving of real estate with a mortgage
Theoretically, transferring a house encumbered by a mortgage is no problem. At least in those cases where an “easement” has not yet been entered in the Land Registry, which precludes the sale and any other transfer to a new owner.
In practice, however, usually not only the mortgage, (thus the bank’s lien), but also the prohibition of alienation, (thus the transfer of real estate), is usually entered in the Land Registry, whether on the basis of a purchase or a gift contract.
Each transfer then must be approved by the bank that is the lender, and in whose favor the restrictions are usually registered in the Land Registry. Once the bank has approved the transfer, a standard transfer of the gifted property can start. The remaining obligations to the bank can then be transferred to the new owner. This is especially the case in the above mentioned lien, thus a guarantee that when the mortgage stops being paid, the bank can heal the property. It can theoretically sell it “overhead” to the donee, who has nothing to do with the original mortgage loan. Of course, everything depends on the agreement between the original owner and the bank.
Gift giving of a cooperative apartment
The gift giving of a cooperative apartment and the gift giving of an apartment in personal ownership differ mainly in the method of transfer. While in the case of a standardly owned apartment we transfer the property itself, while in the case of a cooperative apartment we transfer a share in the housing cooperative. This is because the apartment is owned by the housing cooperative and not directly by a member of the cooperative.
The housing association cannot restrict or prohibit the transfer of a shareholding. Still, the donee must meet the conditions of the cooperative for admission as a member. The share transfer agreement must then be delivered to the housing cooperative. At the same time, it is not necessary to submit a proposal to the Land Registry, because transfers of cooperative shares are not resolved by the Land Registry. The apartment formally remains to the property of the housing cooperative, and only the members of the cooperative will change, depending on who has the right to exclusive use of it.
Gift giving from marital property
Of course, spouses can choose to gift real estate from the marital property. This must be done by joint decision, so the consent of both spouses is always required. Consequently, it is possible to gift real estate not only as a whole but also in part. For example, parents can gift half of a family house to their child, while keeping the rest in the marital property.
Gift giving of real estate with easements
Situations where older parents gift real estate to their children so that they cannot subsequently find themselves without a roof over their heads are very common. Therefore, when gifting the entire real estate and not just part of it, we always recommend that you consider adding an “easement” for a lifetime right-to-use. This condition should certainly not be missing whenever the donor is going to continue living in the gifted property.
In practice, we most often use the so called easement of the right-to-use for a specific person. This can be not only be the donor himself, but also anyone else (for example the donor’s parents, etc.). This person subsequently acquires the right to use the property, even if he is no longer its owner, and no one can have them evicted, even if the property has changed owners repeatedly.
In order for an easement to actually fulfill its purpose, it must be registered in the Land Registry.
- how the property will be inhabited
- how the surrounding land will be used
- who will pay for energy and other services
The proposal for the registration of easements is part of the proposal to register title ownership in the Land Registry.
The contract can be extended to include the so-called “real burden”. In such a case, the donee undertakes to provide the donor with adequate care in old age or in the event of illness, in addition to housing. It is also possible to add a „ban of alienation,“ which prevents the owner from transfering the property to a new owner.
Cancellation of gift and sale of real estate
Everything does not always go according to plan. Sometimes the recipient does not want to keep the property, and other times the donor gets into such a difficult situation that he needs to cancel the gift. How to proceed in such cases?
Cancellation for ungratefulness
The law specifies two situations in which a donor can cancel his gift. Cancellation of a gift is possible even after the gift has been handed over, and the donee is already using the property. What are these situations?
- Cancellation for ungratefulness. This situation occurs when the donee intentionally or negligently harms the donor (for example, commits a crime against him or a person close to him). In the case that something like this happens, the donor has the right to demand the return of the gifted property or to demand payment of its value (for example if the donee has sold the property in the meanwhile).
- Cancellation because of distress. The second case where a gift can be canceled is the donor’s financial distress. If the donor does not have the finances for his necessary needs, (or the needs of persons towards whom he has a maintenance obligation), he may demand the return of the gift or payment of its value, but only in the amount in which the donor does not receive for the necessary needs. In practice, this reason is not widely used. It would have to be, for example, the situation of a childless senior who donated real estate to a distant relative and then found himself in a situation where state aid was not enough to pay for expensive medical care. The donee would have then the option of either paying the expenses or having to sell the property and deliver the part corresponding to the cost of medical care.
The law also refers to cases where the donee tries to quickly transfer the property to another person in order to avoid his return. If the donee has sold or transferred the real estate to someone else, the law provides that in the case of cancellation a gift, the obligation arises to issue what remains of the gift or its full value. The exceptions are, however, those cases where the real estate was transferred only for the purpose of avoiding the obligation to return the gift or the gift was canceled due to the ungratefulness of the recipient. In these situations, it is necessary to return the property (if the transfer can be canceled) or its entire value.
Sale of gift given real estate
What if the recipient acquires real estate that he does not want to keep? It is entirely up to him whether he decides to sell it, for example. However, if the property is sold immediately after the transfer, it is necessary to count on the payment of income tax. The seller is exempt from this tax only if he was registered for permanent residence in the property for at least two years before the sale. If the seller has never registered residence at the address, in order to be exempt from income tax, it is necessary to wait on the sale for at least five years from the acquisition of the real estate.
We will be happy to help you with the gift giving of real estate
The gift giving of real estate is an event that requires increased attention from both parties, the donor and the donee both. For this reason we will be happy to help you with everything. We will answer your every question and help you set the rules, and we’ll create the contract itself. With our service, you do not risk any future complications such as a badly written contract could bring.
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Gift Giving of real estate
We provide a complete legal service related to Gift Giving of real estate, including the proposal registration to the Land Registry. We will also advise you on how to best deal with taxes. We can do it quickly and correctly so that you don’t have to worry. You can also pay after the service is provided.