If the donor didn't fulfil the conditions for the tax-free sale of the residential property or holiday home at the time of death/gifting, the recipient must take over the input value from the donor and the donor's other tax tax positions. This is known as the principle of continuity.

It's the donor’s historical input value that's used as a basis in the future determination of gains. The historical input value will typically be the price that the previous owner paid for the property when they bought it.

‘Continuity’ also means that the recipient takes over the donor's tax positions, including for example their period of ownership and occupancy.

If you don't already know the donor’s historical input value, you must find this out before the deadline for submitting the tax return for the year in which you receive the property.

The input value of property must be stated in connection with the registration of the value of the property in your tax return the year you receive the property.

If you submit the tax return on paper, you must state the historical input value in a separate attachment to the tax return. You must be able to document the assessment of the historical input value if you're asked to do so.

 

Suitable documentation could be:

• a historical purchase agreement
• information from the land registry
• valuation by a valuer/estate agent

If the property is subsequently sold, this input value will be used to calculate the gain unless you fulfil the conditions for tax exemption yourself as a result of your own period of ownership and use.

Example:

Your parents have gifted you a cabin. Your parents’ period of ownership and use is only three years at the time of transfer, and therefore doesn't fulfil either the condition concerning period of ownership of three years or the condition concerning period of use of five out of the past eight years. Your parents would therefore not have been able to sell the cabin tax-free at the time of transfer. You'll therefore take over your parents' historical input value for the property, i.e. the input value will be equal to the price that your parents paid for the property.

If you sell the property in the future, this input value will be used to calculate any gain. You'll also take over your parents’ period of ownership and use, so that if you own and use the cabin yourself for a further two years after the time of transfer, the conditions concerning period of ownership of five years and period of use of five out of the past eight years will be met, and you'll then be able to sell the cabin without being taxed on the gain. If you sell at a loss, you won't be entitled to a deduction for the loss.

If you sell the cabin without owning and using it for at least two years after the time of transfer, you won't fulfil the conditions concerning period of ownership and use. Any gain will be taxable and any loss will be deductible. You must base the gain/loss calculation on the sale price reduced by your parents’ input value (the cost price).