It is not uncommon for taxpayers to accommodate their parents or parents-in-law in their property free of charge - especially if they are in need of care. A recent ruling by the Federal Fiscal Court (BFH of 14 November 2023, AZ IX R 13/23) shows that this can be disadvantageous from a tax perspective if the home is sold.
If a flat is left to the parents-in-law, this does not constitute personal use by the owner
In this case, a condominium was left to the mother-in-law. The property belonged to the son-in-law and daughter in equal shares. They had registered the address of the flat as their place of residence. More than seven years after the purchase, the mother died and the flat was sold. The spouses unsuccessfully applied for tax exemption on the profit from the sale on the grounds that the flat was used for their own residential purposes.
The mere declaration of the residence does not constitute use by the taxpayer. The tax authorities and the tax court therefore took the view that the transfer of the flat to the mother-in-law was not attributable to the owners as their own residential purposes and therefore subjected the gain to income tax in full.
The BFH agrees with this and thereby confirms its view that the transfer of property to close relatives is not favoured for the purposes of tax exemption. The only difference is if the home is given to the child to be taken into account for income tax purposes for their own use. This is to be categorised as the taxpayer's own residential purpose, as the taxpayer is responsible for providing accommodation for the child. Such a maintenance obligation cannot necessarily be assumed in the case of one's own mother or mother-in-law.
Maria Ikhlas
Manager, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
No clear decision is foreseeable, even in the case of a possible maintenance obligation
No findings were made in the tax court decision on the question of whether a tax benefit exists in the case of an actual maintenance obligation. It is therefore not foreseeable that the case law will change in favour of the taxpayer. In the present case, taxation could have been avoided if the spouses had held or rented out the flat for a further three years, as the profit is tax-free after ten years.
