Gift or Sale? Transferring Property Ownership in Hungary

When transferring ownership of real estate, the question often arises whether a gift or rather a sale and purchase is the more favourable solution for the parties. This dilemma is particularly common when assets are transferred between family members, where the parties do not necessarily wish to settle ownership on a commercial basis.

Although a gift may seem simpler at first glance, choosing the right solution requires considering the rules on transfer duty, any tax consequences and the later legal risks as well.

What Is the Difference Between a Gift and a Sale and Purchase?

The most important difference is the presence of consideration.

In the case of a gift

The donor transfers ownership of the property to the donee without consideration.

The purpose of the contract is therefore to provide a financial benefit free of charge.

In the case of a sale and purchase

Ownership of the property is transferred in return for a purchase price.

The buyer undertakes to pay the purchase price, and in return the seller transfers ownership.

The legal nature of the two transactions differs, which may also affect the duties payable and any later legal disputes.

When Is a Gift Advantageous?

Gifts are particularly common between close relatives.

Under the rules in force, gifts between lineal relatives (for example parent and child) and between spouses are exempt from duty.

Thanks to this, many families choose this solution, for example:

• when providing a home for a child;
• when arranging family assets;
• in the case of transferring assets before succession;
• when settling ownership between spouses.

In such cases, a gift can result in significant cost savings.

When Is a Sale and Purchase Agreement the Better Choice?

A sale and purchase is generally justified where ownership really is transferred in return for consideration.

It is inadvisable to disguise as a gift contract a transaction that is in fact concluded for a purchase price, as this can later cause tax or evidentiary problems.

A sale and purchase may be particularly justified:

• between more distant relatives;
• between acquaintances or business partners;
• in the case of investment transactions;
• where there is an actual movement of money between the parties.

The type of contract must always reflect the parties’ true intention.

What Duties Must Be Expected?

Gift duty

As a general rule a gift is subject to duty, but full exemption applies in many cases.

The most common duty-exempt cases:

• between parent and child;
• between grandparent and grandchild;
• between spouses;
• between adoptive parent and adopted child.

Duty on transfer of property for consideration

In the case of a sale and purchase, the buyer as a general rule pays duty on the transfer of property for consideration.

When buying residential property, the general rate of this is 4% of the market value of the property, subject to certain allowances and exemptions.

The actual costs require individual assessment in every transaction.

Can a Gift Be Reclaimed?

Many people are unaware that a gift may in certain cases be reclaimed.

Where the statutory conditions are met, the law allows a gift to be reclaimed, for example:

• in the case of gross ingratitude;
• because of the donee’s conduct;
• when certain life circumstances arise.

This is a significant difference compared with a sale and purchase, where the transfer of ownership is usually final.

What Should the Parties Watch Out For?

Whether it is a gift or a sale and purchase, it is advisable to clarify in advance:

• the ownership status of the property;
• any encumbrances;
• usufruct rights;
• the position of any co-owners;
• the duty and tax consequences;
• the conditions of the handover of possession.

Choosing the wrong type of contract can later result in significant additional costs or legal disputes.

Why Is It Worth Consulting a Lawyer?

Transferring ownership of real estate always requires the involvement of a lawyer.

A lawyer can provide assistance with:

• choosing the appropriate type of contract;
• reviewing the rules on transfer duty;
• checking the land registry extract;
• drafting the contract;
• handling the land registry procedure.

Appropriate legal advice can offer a significant advantage as early as the preparation of the transaction.

Summary

Whether a gift or a sale and purchase is the right solution in a given case always depends on the parties’ relationship, their aims and the circumstances of the transaction. Between close relatives a gift can often be a duty-exempt and cost-effective solution, while where ownership is transferred for genuine consideration a sale and purchase agreement is generally the appropriate choice.

Before deciding, it is advisable in every case to examine the duty and other legal consequences, so that the transaction is carried out safely and in accordance with the parties’ interests.