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- How to Transfer Real Estate Under Taiwan’s New Real Estate Law
2024-09-10How to Transfer Real Estate Under Taiwan’s New Real Estate Law
Under Taiwan’s new unified real estate system, what is the best way to arrange the inheritance of real estate?
Transferring a house to children through a gift allows the use of the announced current value to calculate the gift amount, and there is a tax exemption available to save on taxes. However, if children sell the house later, they will face a huge unified real estate tax because the profit is calculated based on the announced current value at the time of the gift (which is about 30% of the market price, much lower) minus the actual selling price, resulting in a significant profit and a hefty unified real estate tax. If the transfer is done through a sale, the children need to come up with funds close to the actual market price to purchase it; otherwise, the Taiwan National Taxation Bureau might consider it a sham transaction that is a gift. In this case, is there a perfect solution?
If you do reasonable tax planning, it may be possible. Judging from the asset scale of our average middle-class, parents can gradually gift cash to their children as a down payment for each year. Once the down payment is enough, they can then arrange to sell the house to the children at a price close to the market value. The children can apply for a mortgage, and the money disbursed by the bank is given to the parents. The children pay the mortgage, and parents can continue to gift cash to help their children pay the mortgage, thus solving the problem of “children facing a huge unified real estate tax when selling the house later”.
For example, a father wants to transfer a house worth about TWD 12 million in the market to his 28-year-old son. The assessed current value of the house and the announced current value of the land total is about TWD 3.5 million.
The annual tax exemption amount for gift tax in Taiwan is currently TWD 2.44 million. If the gift is given across years to the son, with the father gifting TWD 2.44 million on December 31 this year, and then gifting another TWD 1.22 million on January 2 next year (2.44 million + 1.22 million = 3.66 million), the father’s gifts in both years are exempt from gift tax because they do not exceed the exemption amount. As a result, the son now has TWD 3.66 million in cash as his own funds.
Next, through a sales transaction, the father sells the house to his son for TWD 12.2 million, slightly above the market price of TWD 12 million (assuming a loan of 70% amounting to TWD 8.54 million, with the down payment being 30% or TWD 3.66 million). Moreover, once the bank approves the loan, it directly disburses TWD 12.2 million to the father (seller). With the bank disbursement as a cash flow, plus the loan agreement, and considering the son has a loan of TWD 9.76 million, the National Taxation Bureau recognizes the son's current working ability as capable of repayment, it would not be considered a sham sale but a real gift.
If the son sells the house within two years (short-term holding) at the market price TWD 12 million, since there is no profit compared to the original purchase cost of TWD 12.2 million, the unified real estate tax would be zero.
This way, it not only saves on the initial gift tax but also saves on the future integrated house and land tax.
If the sale arrangement is not made, and the son acquires the property through a gift and then sells it at the market price of TWD 12 million, with the announced value being only TWD 3.5 million, there would be a profit of TWD 8.5 million subject to the integrated real estate tax. Even if the property is used for personal use for 6 years before selling, enjoying a tax exemption of TWD 4 million and a preferential tax rate of 10%, calculating TWD 8.5 million minus TWD 4 million, and then multiplying by 10%, a tax of TWD 450,000 on the integrated house and land tax would still have to be paid.
In the above article, the amount of profit from the sale of the property by the father to his son still needs to be incorporated into Taiwan's comprehensive personal income tax for taxation. The taxable amount needs to consider the period during which the father originally held the property and the actual comprehensive personal income tax situation for further tax assessment.
Kaizen can provide customized personal tax planning and recommend the most suitable plan. If you need our services, please feel free to contact us.
Transferring a house to children through a gift allows the use of the announced current value to calculate the gift amount, and there is a tax exemption available to save on taxes. However, if children sell the house later, they will face a huge unified real estate tax because the profit is calculated based on the announced current value at the time of the gift (which is about 30% of the market price, much lower) minus the actual selling price, resulting in a significant profit and a hefty unified real estate tax. If the transfer is done through a sale, the children need to come up with funds close to the actual market price to purchase it; otherwise, the Taiwan National Taxation Bureau might consider it a sham transaction that is a gift. In this case, is there a perfect solution?
If you do reasonable tax planning, it may be possible. Judging from the asset scale of our average middle-class, parents can gradually gift cash to their children as a down payment for each year. Once the down payment is enough, they can then arrange to sell the house to the children at a price close to the market value. The children can apply for a mortgage, and the money disbursed by the bank is given to the parents. The children pay the mortgage, and parents can continue to gift cash to help their children pay the mortgage, thus solving the problem of “children facing a huge unified real estate tax when selling the house later”.
For example, a father wants to transfer a house worth about TWD 12 million in the market to his 28-year-old son. The assessed current value of the house and the announced current value of the land total is about TWD 3.5 million.
The annual tax exemption amount for gift tax in Taiwan is currently TWD 2.44 million. If the gift is given across years to the son, with the father gifting TWD 2.44 million on December 31 this year, and then gifting another TWD 1.22 million on January 2 next year (2.44 million + 1.22 million = 3.66 million), the father’s gifts in both years are exempt from gift tax because they do not exceed the exemption amount. As a result, the son now has TWD 3.66 million in cash as his own funds.
Next, through a sales transaction, the father sells the house to his son for TWD 12.2 million, slightly above the market price of TWD 12 million (assuming a loan of 70% amounting to TWD 8.54 million, with the down payment being 30% or TWD 3.66 million). Moreover, once the bank approves the loan, it directly disburses TWD 12.2 million to the father (seller). With the bank disbursement as a cash flow, plus the loan agreement, and considering the son has a loan of TWD 9.76 million, the National Taxation Bureau recognizes the son's current working ability as capable of repayment, it would not be considered a sham sale but a real gift.
If the son sells the house within two years (short-term holding) at the market price TWD 12 million, since there is no profit compared to the original purchase cost of TWD 12.2 million, the unified real estate tax would be zero.
This way, it not only saves on the initial gift tax but also saves on the future integrated house and land tax.
If the sale arrangement is not made, and the son acquires the property through a gift and then sells it at the market price of TWD 12 million, with the announced value being only TWD 3.5 million, there would be a profit of TWD 8.5 million subject to the integrated real estate tax. Even if the property is used for personal use for 6 years before selling, enjoying a tax exemption of TWD 4 million and a preferential tax rate of 10%, calculating TWD 8.5 million minus TWD 4 million, and then multiplying by 10%, a tax of TWD 450,000 on the integrated house and land tax would still have to be paid.
In the above article, the amount of profit from the sale of the property by the father to his son still needs to be incorporated into Taiwan's comprehensive personal income tax for taxation. The taxable amount needs to consider the period during which the father originally held the property and the actual comprehensive personal income tax situation for further tax assessment.
Kaizen can provide customized personal tax planning and recommend the most suitable plan. If you need our services, please feel free to contact us.
Disclaimer
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
WhatsApp/Line/Wechat: +852 5616 4140
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
WhatsApp/Line/Wechat: +852 5616 4140
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