As the owner of a holiday home abroad, you may be thinking about transferring the property to your children while you are still alive. This may be because you are going there less and less yourself and the maintenance and care of the property is becoming too heavy. There is often another factor at play, notably that transferring the home while alive is more tax-efficient than if the children inherit it. However, this is not true: transferring in life can actually lead to more taxes.

Transferring a holiday home to the children

Transferring a second home abroad to your children while they are already alive can be done in several ways. You can gift the house or part of it to your children. But you can also sell it to them, with them paying the purchase price to you in the first instance. The gift is then divided into smaller amounts instead of you donating a relatively large amount all at once. These two ways have different tax implications.

Gift tax

If you donate a holiday home as a resident of the Netherlands, your children will pay gift tax on it in the Netherlands. This is the case if the value of the donation exceeds the applicable exemption. An exemption of €6,604 per year applies to children. On the first 128,751 € above the exemption, 10% gift tax is levied, on all the excess 20% gift tax.

If you sell your foreign home to your children, gift tax is in principle only levied in the Netherlands. If you gift the house to your children, often the country where the house is located will also levy gift tax. The rates and exemptions vary from country to country. There may also be differences within a country. It is good to inform yourself well about the applicable rules, for example with a specialist at the Second Home expo.

Transfer tax

When the property is gifted as such, no transfer tax is levied. If the property is sold, followed by a subsequent remission of the purchase price in instalments, transfer tax is levied. This tax varies from country to country. In France, it is around 5.8% in most cases. In Spain, the transfer tax varies by region and can be 8% to 10% of the purchase price. Again, the advice is: make sure you are well informed so you know what to expect when transferring the holiday home to your children.

Income tax on capital gains

If a holiday home is sold at a profit, some countries levy a special form of income tax:

Spain:

• Flat rate of 19% on the realised capital gain in the second home, even if you donate the house and the value is higher than the one you bought it for.

France:

• The ‘taxe sur la plus-value’ is 19%. If the profit exceeds €50,000, an additional 2% to 6% tax is added.
• Besides income tax, you have to take social security contributions into account in France. The levy is 7.5% for people who can prove they are socially insured in an EU member state other than France.
• The longer you have owned the French holiday home, the more the profit decreases on which tax and social contributions are levied.
• If you gift the property as such, no taxe sur la plus-value is levied in France, unlike in Spain.

Transfer by inheritance

It is often thought that inheriting a holiday home abroad has adverse tax consequences. This is a misconception. Because in both France and Spain, the inheritance of a second home is exempt from transfer tax and no tax is levied on the capital gains present in the house either.

This way, the children can start ‘with a clean slate’. The acquisition price for them is the value at the time of the replacement. Suppose they sell the house shortly afterwards and the value has not yet changed, they will not realise a taxed capital gain themselves. If the children have to pay inheritance tax in Spain or France on the holiday home they inherit, they can usually offset that tax against the inheritance tax due in the Netherlands. In other words, it costs no more tax than inheriting other assets.

Many people think that inheriting a holiday home abroad has unfavourable tax consequences. As you could just read, this is a misconception. It is the transfer in life that sometimes has adverse tax consequences. Do you still have questions about this? If so, contact Second Home and we can refer you to a specialist.