The ‘home-ownership seesaw’ – a tried-and-tested model?
The so-called ‘home ownership seesaw’, also known by the synonym Sylt Model, is an extremely interesting structure for the tax-free transfer of assets between spouses and registered civil partners.
At the heart of the design is the Section 13(1)(4a) of the Inheritance Tax Act, which allows for the tax-neutral transfer of ownership (including co-ownership) of a family home by way of a gift. In this context, the category „family home“ covers any property – regardless of its value or size – in which a dwelling is maintained and used for the owner’s own residential purposes. This provision is of particular practical significance for high-net-worth individuals who wish to transfer cash to their spouse, as – unlike in the case of acquisition upon death under Section 13(1)(4b) of the Inheritance Tax Act (including in the event of inheritance) – the tax treatment is not dependent on a holding period for the property. This arrangement is also attractive because the personal allowances of the spouse or civil partner, in accordance with Section 16 of the Inheritance Tax Act by means of a lifetime transfer of assets within the meaning of the Section 13(1)(4a) of the Inheritance Tax Act remain untouched.
Here are the details:
In the first step, the wealthier spouse transfers the jointly owned family home to their spouse by way of a gift. In the second step, the spouse then sells the family home back to the transferring spouse for consideration (at a purchase price achievable on the open market).
Neither of these two transactions gives rise to land transfer tax, as such transfers between spouses are exempt under Section 3(2) and (4) of the Real Estate Transfer Tax Act (GrEStG) are generally exempt from taxation. For the time being, a transfer back in return for payment pursuant to. Section 23(1)(1), third sentence, of the Income Tax Act (EStG) for the spouse selling the property, as the property is used exclusively for their own residential purposes.
However, in addition to ensuring a (re)purchase price for the property in line with market rates, it is essential to ensure compliance with the so-called ‘cooling-off period’ in order to avoid the risk of being accused by the relevant tax office of abusive tax planning within the meaning of the Section 42 of the German Fiscal Code (AO) to be confronted with. It has not yet been definitively clarified what time intervals must be observed between the individual steps in this regard. It is therefore advisable to plan these intervals on a rather generous basis.
It is also possible, incidentally, to make a further tax-neutral gift of the property in accordance with Section 13(1)(4a) of the Inheritance Tax Act by the wealthier spouse to the other spouse, as this does not constitute a „disposal of the asset“. During the marriage, houses or flats that meet the criteria for a family home may therefore be transferred to the other spouse on multiple occasions. As a result, the beneficiary spouse can both acquire ownership of the family home and receive the proceeds from its sale tax-free.
Should you have any questions regarding Tax planning If you would like professional support with planning and implementing lifetime gifts, our Specialist solicitors in tax law and tax advisers We’d be happy to help.