Managing your property portfolio
“Divided” property ownership is a sensible legal solution that lessens the impact of, or even minimises, the Solidarity Tax on Wealth. Analysis.
Once your portfolio reaches a certain level, your real estate is subject to and taxable under the Solidarity Tax on Wealth. So, what strategies can you adopt to maintain or grow your property portfolio without paying more tax? Benefit from the advantages of a “divided” property (where ownership rights are divided between usufructuaries and bare owners).
Buy the property without right of use (usufruct)
The purchase of a “divided” property allows you to kill two birds with one stone. First, the acquisition of property without right of use allows you to benefit from a drop in price (about 40%) in comparison to full ownership. Generally, the right of use of the property is held for 15 to 18 years by a social landlord. This means of ownership is neutral for income tax purposes because the investor does not receive any rent. As for the value of the property held without right of use, it falls outside the ambit of property taxable under the Solidarity Tax on Wealth. At the end of the “divided” period, the right of use terminates. The bare owner becomes a full owner without having to pay transfer rights. You can choose to live there or continue to rent out the property.
Note: this real estate solution is worth setting up if you are looking to invest in a rental property without an immediate need for it to generate income. It’s a good way of planning for retirement in 15 years.
Give the right of use
Employing this strategy, parents can temporarily give the right of use of a rental property to their adult children that live outside of the family home.
For “gifting” parents: the bare owner of a piece of real estate is not subject to tax under the Solidarity Tax on Wealth, this may permit them to reduce their portfolio to a value below €1.3 million and therefore avoid being subject to this tax. As bare owners, these taxpayers will be subject to reduced income tax because they will not be in receipt of rent for the property the use of which has been “given”.
For the child “beneficiary”: this is an opportunity to receive steady rental income that will allow them to pay all or part of their student rent. Sure, the young adult will be subject to pay tax however, it is generally very little if none at all, so this burden will be minimal.
The termination of the gift period often coincides with the young adult becoming financially independent, with full-ownership reverting to the parents without any fees or tax impact. In this way, there is no dent in their property portfolio.