Whether it is wise in life to transfer your home to your child or children depends on your personal situation and goals. In some cases, inheritance may be more advantageous than sale if you want to transfer the house with the least possible tax burden. In addition, consider the tax rates and exemptions in the country where the house is located. Another option is to choose to have your children pay the purchase price. Be aware that this may have other tax consequences. With all of these things in place, it is important to weigh all of your options before making a decision.

Transfer vacation home to your children with the least tax burden

Do you decide one day that it is time to transfer your vacation home to your children? Then there are several ways you can do this. You can gift the house or portions of it all at once, but if you’d rather they have to pay off the purchase price, then selling is an option. However you choose, the tax consequences are different. So if you want to give the house to your children with the least possible taxes, then this article is really for you.

Gift tax: what you need to know

When you make a gift to your children in the Netherlands, they usually have to pay gift tax for it, unless the value of the gift is below the exempt amounts. In 2022, the exemption is €5,677 per year for children. If you gift the house and the amount exceeds the exemption, 10% tax is levied on the first €130,425 and 20% on everything above that. When selling the foreign house followed by installment payments, usually only the Netherlands will collect gift tax. But beware: depending on where you live, the rates and exemptions can vary greatly.

Transfer tax: what you need to know

If you gift the house, you usually don’t pay transfer tax. But if you sell the house with installment payments, you will be charged transfer tax. In France this is usually around 5.8%, while in Spain the rate varies by region and can be as high as 10%. So take this into account before making your decision.

Income tax on capital gains: what you need to know

Some countries levy income tax when a second home is sold at a profit. In Spain, 19% tax is levied on the capital gain realized and this also applies if you gift the house and the value is somewhat higher than the value for which you acquired it. France also has such a tax, the taxe sur la plus-value. The rate here is 19%, but if the profit exceeds €50,000, additional tax is levied. In addition to income tax, France also levies social contributions, but these have been reduced from 17.2% to 7.5% in 2019. The acquisition price decreases wherever you remain in possession of a French home for longer. note that when you inherit, no transfer tax is due and also no capital gains tax is levied on the capital gains present.

In short: inheriting a house is often more flexible than selling

If you want to transfer a second home to your children, inheritance is often very flexible from a tax point of view and does not cost more tax than other wealth transfers. Contrary to popular belief, you need not expect any adverse consequences from this. Transfers during life can sometimes bring unwanted taxes, so it is not always wise to sell your home. So sometimes doing nothing is the best solution.

Pay a visit to the Second Home expo. There is usually a bank present that can provide more information on this. Before leaving, check the exhibitor list to be sure. A great starting point to a possible inheritance of your vacation home.