Buy in your own name
In this case residential rental income is not subject to direct taxation. Note that it is necessary to include the indexed cadastral income multiplied by a coefficient of 1.40 on your tax return.
In this regard, make sure you think about taking a mortgage loan and especially the type of loan requested (classic mortgage loan, bullet loan, loan with declining interest, etc.) since the tax provisions allow to fully deduce all interests from the amount of the increased cadastral income (as explained above).
Note that the property income which is the subject of a tax deduction on the part of the tenant (office, trade, liberal profession, etc.) leads to an increase in taxation on the part of the owner. In fact, 60% of rental income of this type will be added to the taxable amount of the taxpayer.
An additional substantial advantage of acquiring in your own name aims also at avoiding capital gains tax after 5 years of ownership. In the first 5-year period, remember that the capital gain tax is calculated as follows:
- Purchase price + 25% (flat rate) = X
- Amortization of 5% on the total amount paid/past financial year = Y x Number of years
- Sale price
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Tax rate: 16,5% plus additional cents
Remember that this tax is not due for real estate properties where taxpayers are domiciled
A property for which the taxpayer is not a resident:
- Purchase price: € 300,000 (a)
- Resale of the property after 2 full fiscal years: 2 x 5% of capital gain accepted i.e. € 37,500 (b)
- 25% flat rate calculated on the purchase price: € 75,000 (c)
Sale price: 420.000 €
Purchase price: 300.000 € (a)
Amortization: + 37.500 € (b)
25% flat rate: + 75.000 € (c)
Resale price total: € 412.500
Sale Price: 420,000 €
Tax: 420,000 €
- 412,500 €
= 7,500 €
x 16,5 %
= 1,237 €
Note that this tax is marginal and only applies in very few cases. In our example, we point out that the buyer had acquired the property for € 300,000 and sold it 2 years later with a gain of 40%. However, this remains highly theoretical and rarely applicable, unless you made an exceptional operation. We can therefore conclude by saying that the capital gain tax will almost never be applied.
Creation of a private assets company
There are 2 big advantages
- Integrate your real costs in the property assets (works, insurance, property tax).
- Transfer your real estate assets to your loved ones by simple transfer of shares or by donation.
But also 2 big disadvantages
- Taxation of the rental income (from which the costs incurred have been deducted – i.e. works, insurance, property tax, etc.).
- Taxation up to 33.99% on the capital gain realized from the resale.
In the 80s and 90s, there was very often an opportunity to build up real estate assets through an assets company, but this trend is by now clearly reversed.
Of course, it will still be possible to transfer the shares of the company owning the buildings to avoid taxation on capital gain, but we leave it up to specialists to inform you about the tax consequences and explain you what it means.
An essential parameter to take into consideration in the context of the creation of a private assets company is the importance of the investment. We believe that this alternative should be considered as from 8 to 10 properties.