The gift of real estate is one form of gratuitous transfer of property that is often used between family members or partners. Donating real estate brings with it a number of issues. How to do everything correctly legally? When to add an easement to the contract and what happens if the donation does not go as planned? Not only these questions can be answered in the following article.
A gratuitous transfer of property is most often made by way of a gift, where the donor transfers ownership to the donee without any financial compensation. Whether it is a gratuitous transfer of land, a family house or an apartment, it is always necessary to draw up the gift agreement correctly. The word correctly is not used casually. It only takes a small mistake to drag the whole process out or even stop it altogether. Ideally, you should consult a professional about drafting a gift agreement. Templates downloaded from the internet can contain a variety of errors and outdated information.
It is also essential that the signatures on the contract are certified by a notary, lawyer or Czech Point employee. It is also necessary to ensure that the authenticity of the signatures on the contract is properly proven for land registry purposes ; this is most often done by official verification of signatures.
The contract must then be delivered together with a completed application for registration to the Land Registry, which will make the change in registration. The fee for entry into the Land Registry is CZK 2,000.
Now you may be thinking that there is nothing difficult about creating a contract. So why approach a professional? Believe me, even the most careful can overlook some of the many small details. Conveyancing often involves several title deeds that include not only the buildings themselves, but also the land. Each share must then be specifically identified in the contract and transferred to the new owner. If the correct designation is not made, the damage can be really big – as in the case of Mrs Kamila, who lost her property definitively because of the wrong registration.
If more than one person owns the property, there may be a gift of a co-ownership share, where one of the co-owners transfers his/her share to another person. If the donation concerns only a part of the property, for example in the case of a gift of a co-ownership interest, it is necessary to clearly define what share of the property passes to the donee.
Although the new Civil Code contains the principle of superficies solo cedit (translated, the surface gives way to the land, i.e. the building is part of the land), houses and land are often integrated gradually. Thus, sometimes the house may not be part of the land, which, if incorrectly treated in the contract, leads to a mistake in the form of a gift of land without a house or, conversely, a house without land. Thus, the contract must always treat not only the house or flat, which is the primary concern, but also the donation of the land. In the case of a gratuitous transfer of land, the same procedure is followed as for a gift of a house or flat. In the case of a gratuitous transfer of land between relatives, the donee is exempt from income tax.
In practice, we often encounter clients dealing with the consequences of an incorrect gift agreement. In extreme cases, they even lose the property. However, it is not only the donee who should be certain, but also the donor. For example, in situations where the donor wants to continue living in the apartment or house. We think about all this when drawing up gift agreements.
Ensure that the donation of the property goes smoothly
It usually doesn’t end with the transfer of the property. The donee still has to sort out any financial obligations to the state that may arise from the acquisition of the property.
Until 2014, the receipt of a gift was followed by the payment of estate gift tax. However, the gift tax was repealed by the Income Tax Act that year.Income from gifts is still part of income tax. For individuals, a basic rate of 15% applies, while an increased rate of 23% applies to the part of the tax base exceeding 36 times the average wage. For corporations, the income tax rate is 21% from the tax year starting in 2024. The relationship between the donee and the donor also plays a role in the tax calculation. If the property “remains in the family”, the donee is also exempt from this tax.
If the donee is not a person for whom the law exempts gratuitous income from tax, the value of the gift must be included in the tax return. The exemption does not generally apply to all relatives in the collateral line or to any partner living in the same household for a year. If you receive exempt income in excess of CZK 5,000,000, you are generally obliged to report it to the tax authorities by the end of the deadline for filing the tax return for the year; however, the law also provides for exceptions, in particular for income identifiable from accessible records and registers. This notification obligation applies only to exempt income, not to income subject to tax.
After the abolition of the gift tax, the other major tax change in 2019 was the abolition of the real estate transfer tax, which took effect from the end of March 2020.
With the abolition of property tax, it might seem that no tax obligations arise when selling and buying a flat or house. However, the opposite is true. Taxes still need to be thought about. Which ones apply to the seller and which ones do the buyer have to take care of? We have dealt with this in our separate article.
If the donor dies within three years of the donation, the value of the gift may be taken into account in the inheritance proceedings under certain conditions, in particular when calculating the mandatory share of the non-minor heir. However, this is neither a general rule for all heirs nor an automatic “deduction” of the gift from the share of the estate. As an example, consider three siblings, one of whom received a family cottage as a gift. The parent who gave the cottage subsequently dies and leaves an estate worth CZK 600,000. Normally, each of the siblings would inherit a share of CZK 200 000, but because one of them received the cottage at a much higher value, only the remaining two siblings will share the estate.
Cases where a widowed grandmother decides to gift a property to her favourite grandchild without any intention of continuing to live there are an ideal model. In practice, however, we see it rather rarely. Much more often we see transfers involving a mortgage, a share in a housing cooperative or an easement. How does the donation of a property or a part of it proceed in such cases?
The transfer of a house encumbered by a mortgage loan is theoretically not a problem. The transfer of a house encumbered by a mortgage loan is not per se excluded. A complication is often the case when a prohibition of alienation or other restriction agreed in favour of the bank is registered in the Land Registry.
In practice, however, not only the mortgage, i.e. the bank’s lien, but also the prohibition of alienation, i.e. the transfer of the property, whether on the basis of a purchase or gift agreement, is usually entered into the cadastre.
Each transfer must then be approved by the bank, which is the provider of the loan and in whose favour the restrictions are usually registered in the cadastre. Once the bank has approved the transfer, the standard transfer of the donated property can take place. The remaining liabilities to the bank can then be transferred to the new owner. These include the aforementioned lien, i.e. the guarantee that if the mortgage stops being paid, the bank can feast on the property. It can therefore theoretically sell it even “over the head” of the donee, who has nothing to do with the original mortgage loan. But of course it all depends on the agreement with the original owner and the bank.
The free transfer of a cooperative flat and the donation of a privately owned flat differ primarily in the manner of transfer. While in the case of a standard owned flat we transfer the property itself, in the case of a gratuitous transfer of a cooperative flat we transfer the cooperative share in the housing cooperative. The cooperative owns the apartment, not the cooperative directly.
The housing cooperative cannot restrict or exclude the transfer of the cooperative share if the purchaser is to be a person who meets the conditions of the statutes for admission as a member of the housing cooperative. However, 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 association. At the same time, there is no need to submit an application for entry into the Land Registry, as the Land Registry does not deal with transfers of cooperative shares. The apartment formally remains in the ownership of the cooperative, only the cooperative member who has the right of exclusive use changes.
Spouses can of course decide to donate real estate from the community property. This must be done by joint negotiation, so the consent of both spouses is always required. Subsequently, it is possible to donate not only the property as a whole, but also a part of it. Thus, for example, parents can give half of the family home to their child while keeping the remaining part in the SJM.
Situations where elderly parents give property to their children only to find themselves homeless are not uncommon. That’s why we always recommend that you consider adding a lifetime “easement” when gifting the whole property – not just part of it. This condition should certainly not be absent wherever the donor intends to continue living in the donated property. In practice, we most often use a “usufruct easement” for a specific person – this can be not only the donor himself, but also anyone else (for example, the donor’s parents, etc.). This person then has the right to continue to use the property even though he or she no longer owns it, and no one can have him or her evicted even if the property changes hands repeatedly.
For an easement to actually fulfil its purpose, it must be registered in the Land Registry. Not only a verbal agreement, but also a written agreement that is not recorded in the Land Registry is just “talking to the wind”. It is always necessary to describe the easement correctly to avoid mistakes in the registration. It is advisable to specify, for example:
The proposal for registration of the easement is part of the proposal for entry into the Land Register.
The agreement can also be extended to include a so-called “real easement“. In such a scheme, the donee undertakes to provide the donor with adequate care in old age or in case of illness, in addition to housing. It is also possible to add a prohibition of alienation, which prevents the new owner from transferring the property to the new owner.
Tip: Are you planning to donate a property with an easement? Don’t rely on a sample real estate gift agreement with an easement. This is because such templates, which are freely available for download on the internet, are often outdated and full of errors. Contact an experienced attorney instead. An affordable attorney will prepare a complete contractual and legal service for you , including the gift agreement, registration in the land registry and taxes. All this within 48 hours, flawlessly and professionally.
Things don’t always go exactly as we wish. Sometimes the donee doesn’t want to keep the property, sometimes the donor gets into such a difficult situation that they need to revoke the gift. How to proceed in such cases?
The law clearly sets out two situations in which a donor can revoke their gift. It is possible to revoke the gift even after the gift has been given, i.e. when the donor is already using the property. And what are these situations?
The law also refers to cases where the donor seeks to quickly transfer the property to another person in order to avoid its return. If the donee has sold or transferred the immovable property to someone else, the law provides that the revocation of the gift triggers the obligation to return what remains of the gift or its full value. However, the exceptions are those cases where the property was transferred for the sole purpose of avoiding the obligation to return the gift or the gift was revoked due to the ingratitude of the donee. In these situations, the property must be returned (if the transfer could be revoked) or its full value.
Tip: Thousands of pages and many articles and books have been written about buying, selling, renting or donating real estate. However, there are also many other ways to dispose of real estate that are less written about. You may have come across property leasing, but such land swaps have become rather rare. We discuss both transactions in more detail in our next article – Less common real estate contracts.
What if the donee receives a property that they don’t want to keep? It is, of course, entirely up to the donor whether he or she decides, for example, to sell. If he sells the property immediately after the transfer, however, he must take into account the payment of income tax. The seller may be exempt from the tax if he has resided in the property for at least two years immediately before the sale. If the seller does not meet the two-year residence requirement, the sale proceeds may be exempt if the so-called time of ownership test is met. For properties acquired before 31 December 2020, this period is generally 5 years; for properties acquired from 1 January 2021, the period is extended to 10 years.
The donation of real estate is an event that requires increased attention from both parties, i.e. the donor and the donee. That is why we will be happy to help you with everything. We will answer all your questions and help you with setting the rules and drafting the contract itself. With us, you do not risk any future complications that an incorrectly drafted contract could bring.
The donation of a property is a legal transaction that must be carefully drafted in the correct form to avoid problems when registering it with the Land Registry. When transferring property for no consideration, whether it is a house, apartment or a gratuitous transfer of land, it is necessary to verify the signatures on the donation contract and file a petition for entry into the Land Registry with a fee of CZK 2,000. The donation of a co-ownership share requires a precise definition of the part to be transferred, just like the gratuitous transfer of a cooperative apartment, where a membership share in a housing cooperative is transferred. The tax liability depends on whether the donee falls within the statutorily defined circle of persons for whom the gratuitous income is exempt from tax. Gifting property to a companion is possible, but the tax advantage only applies if there is proven cohabitation. To protect the donor, an easement can be added to the contract to ensure lifetime use of the property. The gift can be revoked under certain conditions, for example, because of the donor’s ingratitude or distress.
A gift agreement under the Civil Code must always contain a clear identification of the donor and donee, a precise description of the gift (e.g. real estate or movable property), an expression of intent to donate and an expression of intent to accept the gift. In the case of a transfer of immovable property, a written form and subsequent entry into the Land Registry is required. In practice, a gift agreement with an easement is also often dealt with if the donor is to continue to live in the property.
The separate gift tax was abolished in 2014. Today, only the gift tax – estate as part of income tax – is addressed. If the gift is made between close persons (direct or collateral line or a partner living in the same household), the donee is exempt from the tax. In all other cases, the value of the gift is included in the tax return. Do not forget the so-called reporting obligation – if the value of the donated property exceeds CZK 5 million, this must be reported to the tax office. At the same time, it is also important to resolve any easements, liabilities and land registry entries.
The price depends on the type of transfer and the required legal services. A simple transfer of movable property (e.g. a deed of gift for a dog) is usually cheaper, while a gift of real estate is legally more complex. The price may also include the preparation of the application for registration, communication with the Land Registry and preparation of any easement. If the contract is prepared by a notary, the notary’s tariff will apply.
The Civil Code expressly regulates the gift on death in § 2063. If the gift is conditional on the donor’s survival, such an arrangement is generally treated as a bequest. However, it is governed by the provisions of the gift if the donee accepts the gift, if the donor expressly waives the right to revoke the gift and if he issues a deed to the donee to that effect; this is without prejudice to the requirement of form pursuant to § 2057 of the Civil Code. Therefore, if a person wishes to transfer property only in the event of his or her death, it is usually advisable in practice to consider both the institution of a gift on death pursuant to Section 2063 of the Civil Code and a will, a contract of inheritance or a bequest.
Although there are various types of downloadable documents – for example, “gift agreement sample”, “free gift agreement sample”, “gift agreement with easement sample”, “gift agreement insolvency sample” or “gift agreement sample PDF” – using them is always risky. They do not contain individual adjustments and often do not respect the actual law, the specifics of the property or the obligations (e.g. mortgage, foreclosure or insolvency). Professional drafting is therefore recommended for higher-value gifts to ensure that the gift agreement is properly worded, legally valid and not subject to later challenge. A professionally prepared document will often avoid complex disputes – especially in the case of real estate or gifts between relatives.
We will provide you with a complete legal service related to real estate donation, including a proposal for entry into the Land Registry. We will also advise you on how to deal with taxes in the most advantageous way. We will handle everything quickly and flawlessly, so you don’t have to worry about a thing. You can pay after the service has been provided.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
