1. Siblings Are Relatives Within the Second Degree of Kinship

2. Difference Between the Self-Use Residential Tax Rate and the General Tax Rate

• If the transfer is handled as a sale, there may be an opportunity to apply the 10% self-use residential land value increment tax rate.
• If the transfer is handled as a gift transfer, only the general land value increment tax rates of 20%, 30%, or 40% may apply.
• A Sale May Qualify for the Self-Use Land Value Increment Tax Rate, but Payment Flow Must Be Documented
  • Generally, the longer the land has been held, the higher the land value increment tax may be. Therefore, if the 10% preferential self-use residential land value increment tax rate can be applied, at least half of the tax amount may be saved.
  • However, under the Estate and Gift Tax Act, a sale of property between relatives within the second degree of kinship is, in principle, deemed a gift and subject to gift tax.
  • It will not be treated as a gift only if proof of payment can be provided, and the payment was not funded by a loan from the seller to the buyer or by borrowing from another person with security provided by the seller. Only after the National Taxation Bureau determines that the transaction is not a gift will it not be treated as a gift.

3. House and Land Transactions Income Tax Issues When Gifted Real Estate Is Later Sold

• For gifted real estate, the acquisition cost is calculated based on the publicly announced current land value plus the assessed present value of the house. If the property is later sold to a third party, it will generally be sold at market value. Note: The publicly announced current land value plus the assessed present value of the house is generally much lower than the market value.
• If the market value minus the acquisition cost at the time of the gift, namely the publicly announced current land value plus the assessed present value of the house, results in a large amount, the National Taxation Bureau may treat the sale as generating a significant gain when house and land transactions income tax is filed. This may result in a high amount of house and land transactions income tax.

4.Explanation of the Gift Tax Exemption

• Starting from January 1, 2022, the annual gift tax exemption per person was increased to NT$2.44 million. In other words, from 2022 onward, regardless of how many recipients the donor gives property to during the year, as long as the total amount gifted from January 1 to December 31 does not exceed NT$2.44 million, gift tax is exempt.
• For this type of gift tax calculation, the value 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 owner may also choose another approach: gifting the real estate in portions over different tax years.
• Because the house and land transactions income tax system has been implemented since 2016, taxes on the house and land are calculated together. The calculation formula is: [transaction price − acquisition cost and related expenses − total land value increment] × applicable tax rate.
• However, it is important to note that the acquisition cost in the formula is fixed based on the publicly announced current land value and the assessed present value of the house at the time of the gift, and cannot be changed later.
• Therefore, if the property is acquired through a gift transfer, the acquisition cost may be low, but when the property is later resold, a higher amount of house and land transactions income tax may be payable.