• Sale
  • Transfer during lifetime
  • Requires proof of payment flow or debt exemption, which may be treated as a gift.
• Gift
  • Transfer during lifetime
  • Gift tax may apply, or the gift may need to be made over multiple years.
• Inheritance
  • The property is inherited by the heirs after death.
  • A will may be made in advance to designate the distribution of the estate property.

1.Tax and fee comparison: sale vs. gift vs. inheritance

3. Taxes on sale, including sale between relatives within the second degree of kinship

• According to Article 5, Subparagraph 6 of the Estate and Gift Tax Act, the sale of property between relatives within the second degree of kinship is deemed a gift and is subject to gift tax. However, this does not apply if clear proof of payment can be provided, and the payment was not borrowed from the seller or obtained through a loan secured by the seller.
• In other words, although gift tax does not need to be paid for a sale, because it is a sale between relatives within the second degree of kinship, the actual payment must still be reported to the National Taxation Bureau. After the National Taxation Bureau reviews the filing, a Certificate of Consent to Transfer as Non-Gift Property will be issued, and only then can the transfer registration be completed.
• The agreed sale price in this transaction may directly affect the income tax on property transactions, based on actual assessment, or the house and land transactions income tax under the new system payable by the seller. If the buyer sells the real estate in the future, the sale price will also serve as the buyer’s acquisition cost when calculating the house and land transactions income tax.

• The source of the sale price must be reviewed by the National Taxation Bureau.
  • In principle, the sale price may come from a gift made by another person. There is no restriction on who the donor may be; it may be the father, mother, paternal or maternal grandparents, relatives, spouse, boyfriend, girlfriend, or another person. The gift may be made in the current year or accumulated through gifts made over multiple years. In general, donors choose not to exceed the NT$2.44 million annual gift tax exemption for that year. If the amount exceeds the exemption, the donor only needs to file gift tax and pay the gift tax.
  • Many buyers will apply for a bank loan to pay part of the sale price. However, even if the bank has approved and disbursed the loan, if the National Taxation Bureau determines that the buyer’s income from the previous year is insufficient to repay the monthly mortgage payments, it may still ask the buyer to provide additional proof of income. Therefore, if the buyer has income that they do not wish to disclose, such as rental income, online sales income, or unreported salary, an appropriate sale plan should be arranged before signing the sale agreement to avoid being placed in a difficult situation.
  • Regardless of the reason, none of the sale price paid by the buyer may be borrowed from the seller.
  • When the buyer applies for a bank loan, the seller cannot act as a general guarantor or joint guarantor. The buyer also cannot use other real estate owned by the seller as mortgage collateral to obtain funds for the sale price.

• A sale may qualify for the self-use residential land value increment tax rate, but a gift can only apply the non-self-use land value increment tax rate.
  • In general, when a house is transferred between relatives, the most common reason for choosing a “sale” instead of a “gift” is to apply the 10% preferential land value increment tax rate for self-use residential property. Many people mistakenly believe that because the current house tax and land value tax are already taxed at self-use rates, the land value increment tax for the sale can also apply the self-use rate. However, house tax and land value tax are holding taxes, while land value increment tax is a transfer tax. The applicable requirements are completely different. 
  • If the real estate is transferred by “gift,” even if the current house tax and land value tax are both taxed at self-use rates, and even if the property is not rented out or used for business, the preferential land value increment tax rate for self-use residential property still cannot apply. In such cases, it is often because the holding period of the real estate is not long enough, so the difference between the self-use rate and the general land value increment tax rate is not significant. Alternatively, the seller may not meet the requirements for the once-in-a-lifetime rule or the one-house-in-a-lifetime rule for the self-use land value increment tax rate, and therefore simply chooses to transfer the real estate by gift.

4. Taxes on gifts

• Since January 1, 2022, the annual gift tax exemption per person has been increased to NT$2.44 million. This means that beginning in 2022, regardless of how many people the donor gives gifts to each year, from January 1 to December 31, no gift tax is payable as long as the total amount gifted during that year does not exceed NT$2.44 million. For this type of gift tax, the calculation is based on the publicly announced current land value and the assessed present value of the house.
• If the value exceeds NT$2.44 million, the property owner may also choose another method, which is to divide the real estate gift across different years. Since 2016, the house and land transactions income tax has combined the taxation of houses and land. The calculation formula is: [transaction price - (acquisition cost + related expenses) - total land value increment] × statutory tax rate. However, attention should be paid to this method because the acquisition cost in the formula must be based on the publicly announced current land value and the assessed present value of the house at the time of the original gift, and this cannot be changed. Therefore, if the property is transferred by gift, the acquisition cost is lower, and when the property is resold in the future, a higher house and land transactions income tax may be payable.

• In addition, if the gift is divided across different years, other costs must also be considered, such as land administration agent fees, land administration registration fees, land value increment tax, and other related expenses.

• Tip
  • For land administration purposes, land and buildings are viewed separately.
  • Use a sale for the land: because land value increment tax is imposed regardless of whether the transfer is made by sale or gift.
  • Use a gift for the house: because a sale involves income from real estate transactions, using a gift is simpler.
    If the property is gifted to children, gift tax will be imposed, and the children may have to pay a higher house and land transactions income tax when selling the property in the future. If the property is sold to children, as long as there is clear and reasonable proof of payment, it will not be taxed as a gift.
    

• Gift transfer is not recommended unless necessary.
  • Nowadays, people often hear about transfer methods such as “annual gifts” or “gifts made over multiple years.” These methods use the annual gift tax exemption to transfer real estate in several stages. Compared with gifting the entire property at one time, this can help reduce gift tax.
  • Since January 1, 2016, the house and land transactions income tax has been implemented. The gift tax saved now may not be enough to cover the house and land transactions income tax that may be payable in the future. If real estate is gifted to children, when the children sell the property in the future, the acquisition cost will be determined based on the publicly announced current land value and the assessed present value of the house at the time of the gift. As a result, the taxable income calculated by deducting the cost and expenses from the sale price may be higher, leading to a higher house and land transactions income tax.
     

5. Inheritance saves the most taxes, but involves the greatest uncertainty

• Since 2022, the estate tax exemption has been increased to NT$13.33 million. If deductions are also included, transferring property through inheritance usually provides the best tax-saving effect compared with a sale or gift during lifetime.
• Even if a will designates specific real estate to a particular heir, other heirs may still claim infringement of their compulsory portion.

• Tax savings under the house and land transactions income tax for inherited real estate are subject to conditions.
  • If the real estate was inherited on or before December 31, 2015, the old system applies uniformly. The income from property transactions for the house portion must be calculated according to the regulations and included in the total consolidated income. The income tax return must be filed by the end of May of the year following the year in which the ownership transfer registration date falls.
  • If the real estate was inherited on or after January 1, 2016, whether the new system or the old system applies depends on when the decedent acquired the house and land.
  • If the decedent acquired the house and land on or after January 1, 2016, the new system applies uniformly.
  • If the decedent acquired the house and land on or before December 31, 2015, the old system applies in principle. However, when the heir sells the property, if the statutory requirements for self-use residential house and land are met, and if calculation shows that taxation under the new system is more favorable, the heir may choose to file under the new system. Taxable income up to NT$4 million is exempt from income tax, and the portion exceeding NT$4 million is taxed at 10%.