Right of possession
When you make a gift of property to someone — for example, you donate a summer house, a residential apartment or other immovable property — you may want to retain the right of possession. Alternatively, you can transfer the right of possession to a third party. In these circumstances, the recipient of your gift becomes entitled to a deduction from their gift tax due to retained possession rights.
Several synonyms are used: right of possession, access right, usufruct, liferent, dower, easement, usufructual rights, and others.
It is the responsibility of the donor to determine the exact nature of the rights that the donor decides to keep.
When you give a gift without giving the right of possession
You are entitled either to keep the right of possession to yourself or to transfer the right of possession to a third person. The right of possession may be held by one or more people.
The right of possession means that the donor or the third party having the right
- can use the asset or property;
- receives any revenue, including rent, relating to the property;
- needs to pay fixed costs relating to the property such as real estate tax and housing-company charges;
- cannot, without the consent of the person the property was gifted to, sell or transfer it, nor sell/transfer a privilege associated with it (for example, sell the right to rent out the property).
In situations where the right of possession goes to a third party, no gift tax is collected from that person although he or she is the beneficiary of the right.
When you receive a gift but you do not receive its rights of possession
When a gift comes with the right of possession kept by the donor or transferred to someone else,
- you are the new owner of the property;
- you pay less gift tax because your options for using the gift without the right of possession are limited;
- you are unable to sell the property unless the holder of the possession right gives their consent to selling it.
When you complete your gift tax return, please indicate that the right of possession to the gift is retained.
The Tax Administration will calculate a formal value for the possession right and deduct it from the gift’s value. This reduces the amount of gift tax.
Value of the right of possession in gift taxation
The value depends on for how long the rights continue to be kept – for life or for a limited period.
If there are more than one persons who keep the right of possession concerning the property, the years of age of the youngest one of these persons will determine the value.
The Tax Administration will first perform a valuation concerning the right of possession, and then calculate a tax deduction on your behalf.
The calculation is based on the following:
Age coefficient × Yield coefficient × Fair market value of the gift = Value of the possession right
Coefficients based on the recipient’s age
The coefficient depends on the age of the person who keeps the right of possession, or the age of the person the right of possession is transferred to, as the case may be.
| Age of the person keeping possession | Age coefficient |
|---|---|
| Younger than 44 | 12 |
| 44–52 years | 11 |
| 53–58 years | 10 |
| 59–63 years | 9 |
| 64–68 years | 8 |
| 69–72 years | 7 |
| 73–76 years | 6 |
| 77–81 years | 5 |
| 82–86 years | 4 |
| 87–91 years | 3 |
| 92 or older | 2 |
Coefficients based on economic yields per year
This coefficient is either determined by the actual profits that the property can generate, or alternatively, based on formula-based percentages of economic yield. In situations where it is impossible to ascertain the property’s annual yields, the following percentages are applied:
- 3% for a summer cottage or other recreational real estate
- 5% for other property or assets such as a housing-company apartment, residential house, a book-entry account
Example of the right of possession retained for life: Antti gives his son Mika a summer cottage worth €300,000. Antti's age is 75. Antti decides to keep the possession rights.
The value of the rights is: Age coefficient 6 × Yield coefficient 3% × Fair market value €300,000 = €54,000. This amount will be deducted from the summer cottage’s fair market value. The result is the taxable value of the gift.
The taxable value is €246,000 (€300,000 minus €54,000). Gift tax on a gift worth €246,000 is €29,000 in 2024 (tax bracket 1).
The Tax Administration will first perform a valuation concerning the right of possession, and then subtract the resulting value from gift value.
The calculation is based on the following:
Yield coefficient × Coefficient for limited-period possession × Fair market value = Value of the possession right
The coefficient representing economic yield is either determined by the true yields or profits that the gifted property can generate, or based on formula-based percentages of yield. In situations where it is impossible to define an actual, true size of the yield, the following percentages are applied:
- 3% for a summer cottage or other recreational real estate
- 5% for other property or assets such as a housing-company apartment, residential house a book-entry account.
“Coefficients for limited rights of possession” — Määräaikaisen hallintaoikeuden kertoimet, (pdf, in Finnish and Swedish only)
Määräaikaisen hallintaoikeuden kertoimet (pdf, in Finnish and Swedish only)
Note: If the coefficient for right of possession for a limited period is greater than the coefficient representing the age of a person (when possession rights are kept “for life”), the tax calculations are conducted using the latter.
Example of the right of possession retained for a limited period: Antti gives his son Mika an apartment worth €150,000. Antti's age is 75. He retains possession for 5 years, until his 80th birthday.
The value of the right of possession: Yield coefficient 5% × Coefficient for limited possession 3.99 × Fair market value €150,000 = €29,925. The amount of €29,925 is deducted from the apartment’s fair market value. The result is the taxable value for purposes of gift tax.
The taxable value is €120,075 (€150,000 minus €29,925). Gift tax on a gift worth €120,075 is €12,500 in 2024 (tax bracket 1).
Gift tax and the giving up of possession rights
Retained rights of possession cease automatically when the holder passes away. Correspondingly, rights retained for a limited period cease automatically at the end date of the period.
If the holder has the right “for life” but decides to give up that right during his or her lifetime, it is regarded as a new taxable gift in the hands of the gift recipient.
How to give up the right of possession
- The holder of the possession right can give up the right by writing a free-form letter.
- The current owner of the asset, i.e. the gift recipient, has to submit a gift tax return to inform the Tax Administration that the holder has given up the right of possession. Instructions for filing and payment
After the holder has given up their possession right, both the right of ownership and the right of possession will belong to the gift recipient.
Is giving up the right of possession subject to tax?
Yes, when the holder gives up the right, it is a taxable gift because in the original assessment of gift tax, the amount was reduced due to the fact that the right of possession was kept. The new owner of the property – the gift recipient – needs to pay gift tax because he or she becomes the full owner, now owning the property with the rights of possession as well.
Start date for calculating the value of the right
When the holder decides to give up the right of possession, it is treated as a gift received by the gift recipient, i.e. the new full owner of the property.
The value of the gift is dependent on the value of the right of possession on the day when the right is given up. This means that the start date for calculating the value of the right of possession is not the date of the original gift when the property’s value may have been lower. Instead, the gift tax will be based the value of the day when the right is given up.
Valuation of possession rights is affected by:
- Fair market value of the property
- Property’s economic yield per year
- The age of the person who is giving up their rights
If two or more persons have the right of possession and they all decide to give up their rights, the age coefficient for tax calculation is the one representing the years of age of the youngest person.
Example of giving up the right of possession “for life”
In 2020, Antti gave his grandson Mika a summer cottage, but kept its right of possession to himself for life. However, in 2025 as he turns 80, he decides to give up the right. At that time, the summer cottage’s fair market value stands at €350,000.
The value of the possession right is: Age coefficient 5 × Yield coefficient 3% × Fair market value €350,000 = €52,500. Now being the full owner of the summer cottage, Mika must pay the gift tax. Gift tax on a gift worth €52,500 is €4,450 in 2025 (tax bracket 1).
Frequently asked questions
The donor can retain the right of possession for him- or herself or for one or more other people.
Example: Antti gives a summer cottage to his grandson Mika, who is the son of his daughter Liisa. Antti declares that he wants to retain the right of possession. This means that the right of ownership transfers to Mika but the summer cottage continues to be in Antti's use. If Liisa also uses the cottage, Antti may decide to retain the possession right both for himself and for Liisa. As in the first case, the right of ownership transfers to Mika, but Antti and Liisa have the right of possession.
Retaining the right of possession reduces the gift tax.
Because the recipient's opportunities to use the gift are restricted, the Tax Administration calculates a value for the right of possession and deducts it from the fair market value of the gift. In other words, the basis of gift tax is the fair market value from which the value of the possession right has been deducted.
The person who retains the right of possession is required to actually use the property or receive the revenue generated from it. It is not allowed to retain the possession right only to reduce the gift tax.
Example: Antti donates a single-family house to his daughter Liisa but retains the right of possession. However, Antti does not live in the house, and neither does he receive rental income from it. Liisa moves in with her family, so in fact it is Liisa who exercises both the right of ownership and the right of possession. Because Antti's right of possession is not backed up by the actual circumstances, Liisa is not entitled to a right-of-possession deduction in gift taxation.
Draw up a deed of gift. The deed should contain a clause stating that the right of possession to the gift is retained. You should also state for whom the right is retained and for how long – whether it is for life or for a definite period. If you choose the latter alternative, state the end date of the period.
There is usually no need to submit a deed of gift to the Tax Administration. The instructions for completing a gift tax return contain a list of the circumstances that make it mandatory to enclose a deed of gift or other documentation with the gift tax return. Instructions for completing a gift tax return form
When you fill in the return, enter the fair market value of the gift and state that the right of possession or the profit right or some other right to the gift is retained. This does not affect the gift's fair market value but it changes the basis on which the gift tax is assessed.
The meaning of “right to the gift is retained” is that the gift-giver continues to use the property and/or receive any profit that the property produces. There may also be another type of right, which the giver determines and decides to retain, or keep.
Several synonyms are used: right of possession, access right, easement, usufruct. The giver of the gift must determine the exact nature of the right that will be retained.
When you relinquish the rights that you previously had, at the time when the apartment is sold, the taxes depend on your current circumstances:
- You simply give up the right of possession and you receive no cash compensation. The apartment’s owner receives the right. In these circumstances, the apartment’s owner – the recipient of rights of possession – must submit a gift tax return and pay gift tax. The gift tax return submitted by the owner must inform the Tax Administration that the holder has given up the right of possession.
- When you relinquish the rights you had, you receive some form of compensation or an amount of money. This is considered a transfer of property, and the received compensation is taxable income. You must submit a tax return following the instructions for reporting capital gains on the sale of property. Read the instructions for submitting a tax return in connection with a sale of property or assets. For more information, see chapter 3 of the in-depth guide “Right of possession; usufruct over property and taxation” — Hallintaoikeus omaisuuden luovutuksen verotuksessa (in Finnish and Swedish).
- You have been having the right of possession over an apartment. The apartment is sold to an outside buyer. After that, the seller buys another, similar apartment – and your right of possession now concerns this apartment. For purposes of taxation, you are not considered to fully give up the right of possession, instead, only the property being possessed has changed. Because in this example, the first apartment was similar to the second, newly purchased apartment, so their value is the same, it is also considered that your right of possession’s value is same as before. Under the circumstances, it is not necessary to submit a gift tax return, and no gift tax will be imposed although the apartment has changed.
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