Life Annuity Contract: Tax Implications

What is the meaning of a lifetime annuity agreement?

The meaning of such legal relations is to receive permanent income until the end of life in exchange for the transfer of property rights. This, one might say, is a home sale extended over time, which occurs as follows:

1. The citizen who receives the rent sells his apartment for part of the market value or gives it to the payer. A feature of such agreements is the mandatory restriction of the rights of the new owner to dispose of housing. For example, he cannot sell such an apartment or rent it out without the consent of the former owner. A contract of sale or gift must undergo state registration.

1. The payer in return receives the obligation to regularly transfer funds to the recipient and provide pre-agreed services. For this purpose, citizens enter into a notarial agreement.

What to expect from deals?

Benefits for all parties

• For the payer: the opportunity to purchase an apartment at a reduced price. Two minimum wages are often less than mortgage payments. An annuity agreement with lifetime maintenance is especially useful for large cities. In Moscow, city residents can afford an apartment until they are closer to 30-40 years old, and pay off the mortgage until retirement. Therefore, the idea of ​​​​obtaining square meters in this way seems attractive.
• For the recipient: to ensure a calm and secure old age. The recipient is protected by law on all sides, so older people are willing to make a deal.

Risks, pitfalls, bottlenecks and ways to get around them

For the payer

• Elderly people burdened with relatives. Distant relatives can claim ownership of the apartment. It is better to discuss all aspects of inheritance with the owner of the property in advance.
• Probability of deal termination. There are fewer scammers among rent recipients, but you still need to be careful when choosing an owner. Old people can be suspicious and suggestible.

Tax on a one-time payment for an apartment under a rental agreement with lifetime maintenance

A citizen who receives rent has the right to transfer the apartment into the ownership of the payer in one of the following ways:

1. Under a gift agreement, free of charge. The donor has no taxable income.
2. According to the purchase and sale agreement. The 13% tax must be paid by the seller - the former owner.

When calculating personal income tax on income from the sale of an apartment, a benefit is applied related to the minimum period of ownership of the property: if the housing was owned by a citizen for at least the established period, then the income from its sale is not taxed. The minimum period of ownership of an apartment is regulated by paragraph 1 of Article 217 of the Tax Code of the Russian Federation and is 3-5 years, depending on the conditions of its acquisition.

If the minimum period of ownership of the property is not met, then a property deduction is applied: only the part of the payment for the apartment that goes beyond the non-taxable minimum of 1 million rubles is taxed.

For his part, the citizen-payer, from the date of registration of the agreement on the transfer of an apartment into his ownership with an encumbrance, can use his right to a tax deduction in the amount of the amount paid.

Upon completion of the contractual relationship after the death of the last rent recipient, the encumbrance on the apartment is removed, and the former payer receives the rights of a full owner of the property. The apartment he purchased is not his income and is not subject to personal income tax.

A gift agreement is a gratuitous transaction, i.e. The responsibility for property representation lies with only one of the parties - the donor. He is not due any consideration. The reasons that prompt the donor to transfer a thing or property right to the donee by reducing his property may be different. Most often, the intention to enter into a gift agreement arises under the influence of personal relationships that have developed between the donor and the recipient. This may be a feeling of gratitude to the recipient, sympathy, etc. In any case, such incentives have no legal significance.

If, according to the terms of the contract, the obligations of the donee include the reciprocal transfer of any thing, money, the performance of any work, the provision of services, or the obligation to refrain from performing any actions, then such an agreement cannot be qualified as a gift agreement.

Gifting is always a two-way transaction, i.e. To complete it, the agreed will of both parties involved in the transaction is necessary. This means that to conclude a gift agreement, the desire of one person to transfer a thing or property right to another person as a gift is not sufficient. The recipient must also clearly express his consent to accept the gift.

It should be especially noted that the law does not allow the conclusion of an agreement providing for the transfer of a gift to the donee after the death of the donor (clause 3 of Article 572 of the Civil Code of the Russian Federation). The rules of civil inheritance law apply to such relationships, according to which orders for the transfer of property after death must be in the form of a will.

A contract for the donation of real estate, by virtue of an imperative requirement of the law, is subject to state registration and is considered concluded from the moment of registration, which means it must be concluded in writing.

The law takes into account the gratuitous nature of the gift and therefore contains a number of special grounds for its cancellation that are not applicable to other contracts. Part 1 art. 578 of the Civil Code of the Russian Federation identifies cases when the donor has the right to cancel the donation.

1. A serious reason for the cancellation of a donation by the unconditional will of the donor is the commission of an attempt on the life of the donor or the life of close relatives by the donee.

2. The donor has the right to cancel the donation if the donee intentionally caused bodily harm to the donor (clause 1 of Article 578 of the Civil Code of the Russian Federation). In this case, the nature and severity of bodily injuries do not play a role. This can be intentional infliction of harm to health of varying degrees of severity (mild, moderate, serious harm to health), beatings, and more. To cancel a gift, it is necessary that harm to the health of the donor was caused as a result of the intentional actions of the donee.

3. The donor may demand cancellation of the donation if the recipient’s handling of the donated item creates a threat of its irretrievable loss. On this basis, one can demand the cancellation of a donation, the subject of which was any thing (but not a property right or exemption from a property obligation).

4. Grounds for cancellation of the donation provided for in Part 3 of Art. 578 of the Civil Code of the Russian Federation, is a donation made by an individual entrepreneur or a legal entity in violation of the Law “On Insolvency (Bankruptcy)”; in this case, the court may cancel it. It seems that the interested parties in this case may be the creditors of an individual entrepreneur or legal entity declared bankrupt, as well as the relevant government bodies exercising control over the activities of market entities. This provision is intended to ensure the interests of creditors of insolvent debtors, not giving them the opportunity to hide their property by entering into a gift agreement in favor of third parties. After all, the creditors' claims are satisfied from the bankruptcy estate of the insolvent debtor.

At the request of these persons, the gift agreement may be canceled by the arbitration court if the following conditions exist in total:

1) the donation was made in violation of the provisions of the Law “On Insolvency (Bankruptcy)”;

2) the donation was made at the expense of funds related to the entrepreneurial activity of an individual entrepreneur or legal entity;

3) the gift agreement was concluded within 6 months preceding the declaration of an individual entrepreneur or legal entity as bankrupt.

5). The last basis provided for in Art. 578 of the Civil Code of the Russian Federation, for the cancellation of the donation is not associated with any negative facts. By virtue of clause 4 of this article, the donor has the right to cancel the donation if he survives the donee. However, the donor has such a right only if the parties stipulate this in the gift agreement itself when concluding it. It should be noted that if the donor survives the donee, the gift is not canceled automatically. Each citizen exercises any right that belongs to him at his own discretion. Therefore, the donor may or may not exercise his right to cancel the gift. In the latter case, the gift passes to the heirs of the donee.

Cancellation of a donation is permitted only in the cases specified in Art. 578 Civil Code of the Russian Federation.

The donation may also not take place in cases where the contract is declared invalid (voidable or void) on the general grounds provided for by the Russian Federation. A gift agreement is invalid or may be recognized as such in the following cases:

1) if it does not comply with the requirements of the law or other legal acts (for example, the requirements of the Russian Federation for the form of the transaction are not met);

2) if it was committed for a purpose that is obviously contrary to the foundations of law and order or morality;

3) if it is committed only for show, without the intention of creating corresponding legal consequences - an imaginary agreement (for example, a person, wanting to avoid foreclosure on his property for any obligations, transfers it under an imaginary gift agreement to another person);

4) if it is made with the aim of covering up another transaction - a sham agreement (for example, part of the property that is in the common shared ownership of several persons is transferred by one of them under a gift agreement to another person who is not a participant in the common property, in order to avoid the possibility that someone - one of the other participants in shared ownership will exercise the right of first refusal. Thus, the gift agreement actually covers the purchase and sale transaction);

5) if it is committed by a citizen declared incompetent due to a mental disorder;

6) if the donor under the contract is a minor under 14 years of age (minor);

7) if it was committed without the consent of the guardian by a citizen whose legal capacity was limited by the court due to the abuse of alcoholic beverages or narcotic drugs;

if it was committed by a citizen, although legally capable, but who at the time of his imprisonment was in such a state that he was not able to understand the meaning of his actions or direct them;

9) if it was committed under the influence of a misconception regarding the nature of the transaction (for example, the person believed that he was transferring the thing under a paid contract);

10) if it was committed under the influence of deception, violence, threat, or malicious agreement between a representative of one party and the other party.

In all of the above cases, the gift agreement is either invalid by its nature, or can be recognized as such at the request of interested parties. An invalid transaction does not entail legal consequences. If the transaction is invalid, the donee is obliged to return to the donor everything received under the transaction, and if it is impossible to return what was received in kind, to reimburse its value in money. All these cases are regulated by Art. 166 - 181 Civil Code of the Russian Federation.

Under an agreement of lifelong maintenance with a dependent, the annuity recipient, a citizen, transfers his residential house, apartment, land plot or other real estate into the ownership of the rent payer, who undertakes to provide lifelong maintenance with the dependent of the citizen and (or) a third party (persons) indicated by him. The annuity payer's obligation to provide dependent maintenance may include providing for the needs of housing, food and clothing, and if the citizen's health requires this, also caring for him. A lifelong maintenance agreement with dependents may also provide for payment by the annuity payer for funeral services.

It is important to comply with the form of the agreement - written, with notarization

, plus this provides for the need for
state registration
. Moreover, it is the latter that determines the emergence of corresponding rights and obligations among the parties. Otherwise, the agreement will have no legal force and no legal consequences. It simply was not concluded, and notarization does not play a significant role here. In addition, in accordance with paragraph 3 of Art. 596, an agreement establishing an annuity in favor of a citizen who has died at the time of conclusion of the agreement is void.

The lifelong support agreement must define the cost of the entire amount of dependent support. At the same time, the cost of the total amount of maintenance per month cannot be less than two minimum wages. An agreement on lifelong maintenance with dependents may provide for the possibility of replacing the provision of maintenance with dependents in kind by payment of periodic payments in money during the life of the citizen. The lifelong dependency maintenance obligation ends with the death of the annuitant.

Any citizen can be a annuity recipient, regardless of age, ability to work, or state of health. There may be several annuity recipients. By the way, their shares are recognized as equal, unless otherwise provided by the agreement. In the event of the death of one of them, payments do not stop; the share of the deceased passes to the surviving annuitants.

In addition, it is important that the property transferred for the payment of rent is owned. Accordingly, the rentee must have in hand a document confirming the right to own, use and dispose of residential real estate.

The law also does not impose any special requirements on payers. They can be both citizens and legal entities who have an interest and need in purchasing property from the annuity recipient and who have the economic ability to fulfill obligations under the contract.

Lifetime maintenance with dependency is one of the types of annuity contract, and a bilaterally binding, real, compensated contract, in which the alienation (for a fee or free of charge) of real estate is carried out in exchange for regular guaranteed income and care. The latter extends for the entire life of the annuitant or the person(s) indicated by him, and therefore the contract is fraught with risk and uncertainty in the amount of the annuity due to the duration of the annuity payments. Another feature is the presence of a close connection between the payer of the annuity and its recipient, because the relationship of the parties is usually not limited to the periodic transfer (transfer) of funds or other provided representation, but involves personal contacts and direct psychological interaction.

The difference between rent and donation is obvious; it is compensation for alienation. Rent and purchase and sale differ in the nature of the consideration provided to the annuity recipient in exchange for the alienated property. In purchase and sale, this is a product for a certain amount of money (price); in barter, it is compensation assessed in advance by the parties. But an annuity cannot be distinguished by a known total volume of payments due to the recipient, because the term of the contract, and, accordingly, the amount of consideration, is determined by the lifetime of the annuitant or the person indicated by him. This is precisely the risky nature of a lifelong maintenance agreement with dependents, since it is not known in advance whether the volumes of mutual provision will correspond to each other.

The list of providing for the needs of the annuitant in housing, food and clothing, and if the citizen’s health requires this - caring for him, paying for funeral services is not exhaustive, the parties can determine it at their own discretion, because the current civil legislation provides for the principle of freedom of contract, that is, the right include in it any conditions that do not contradict the law and meet the interests of the parties. But it would be advisable to describe all these “discretion” in detail, indicate the essential features of the content and the procedure for its provision (the mode of purchasing products and preparing food, the procedure for paying for utilities, cleaning the premises, medical care, cases of home care, the possibility of changing the terms of the contract depending on on the condition of the annuity recipient, etc.). Defining the terms in detail reduces the likelihood that later disputes will arise regarding the intended scope of the content. In addition, in practice, in some contracts, the parties provide a clause stating that all agreements, oral agreements that took place before the conclusion of the contract, lose their force from the moment of its signing. This is also a certain guarantee that future attempts by the annuitant to rely on verbal promises will not be successful. The main risk of such contracts is that, as a rule, the parties forget to record the fulfillment of obligations between themselves. As a result, disputes arise, during which it turns out that a completely conscientious owner does not have written evidence of the monthly fulfillment of his obligations to the rent recipient. This, in turn, gives the latter the right to terminate the rental agreement and return the apartment to himself.

In accordance with Art. 551 of the Civil Code of the Russian Federation, the rent payer acquires ownership of the real estate transferred to him by the rent recipient from the moment of registration of the agreement. However, despite the fact that the rent payer becomes the owner of the real estate transferred to him, his rights with respect to the disposal of such property are limited. According to Part 1 of Art. 604 of the Civil Code of the Russian Federation, the annuity payer has the right to alienate, pledge or otherwise encumber real estate transferred to him to ensure lifelong maintenance, only with the prior consent of the annuity recipient. Violation of this condition entails the nullity of the transaction.

By virtue of the general provisions established by Art. 586 of the Civil Code of the Russian Federation, the rent itself encumbers the real estate transferred for its payment. Therefore, in the event of alienation of such property by the rent payer, its obligations under the rent agreement are transferred to the acquirer of the property (Article 586 of the Civil Code of the Russian Federation). The annuity payer under a lifelong dependent maintenance agreement is required to obtain the prior consent of the annuity recipient for the alienation or other encumbrance of real estate transferred to ensure dependent maintenance.

Since the term of the contract is limited to the life of the annuitant, as a general rule, the obligation of life support with a dependent terminates with his death.

Part 2 Art. 605 of the Civil Code of the Russian Federation provides for the possibility of early termination of lifelong maintenance with a dependent at the request of the annuity recipient. This is permitted in the event of a significant violation by the rent payer of its obligations. If the specified condition is met, the annuity recipient is given the right, at his discretion, to demand either the return of the real estate transferred to ensure lifelong maintenance, or the payment of the redemption price to him. In this case, the annuity payer, as the party responsible for the violation of the obligation, cannot demand compensation for expenses incurred in connection with the maintenance of the annuity recipient.

Chief expert,

State Registrar N.S. Tretyakov

Lifetime Annuity Agreement: Taxes on Regular Payments

Such income is treated similarly to rental payments for real estate and is taxed at a rate of 13%.

A feature of tax relations under an annuity agreement between citizens is that the source of payment is not a tax agent. Consequently, he does not have the right to withhold tax from the recipient’s income and transfer it to the budget. The responsibility to calculate personal income tax, submit the declaration to the tax authority and pay the tax lies with the recipient.

When preparing your return, standard tax deductions are applied - for children, disaster relief workers, and others.

Payment of utility costs becomes the responsibility of the rent payer from the date the apartment is transferred to him. Payments for charges for water, heating, gas, electricity and the like are not included in the income of the citizen receiving the rent.

A special feature of a dependency agreement is the obligation of the payer to provide for the needs of the recipient citizen in kind, not limited to the transfer of funds. Moreover, money transfers may not be included in the contractual terms at all. At the same time, the contract for lifelong maintenance with dependents indicates the cost of the entire volume of compulsory assistance, which is subsequently used in calculating personal income tax.

Due to advanced age, the recipient may not be able to independently fulfill tax obligations. He has the right to instruct the payer to transfer the tax and submit the declaration to the Federal Tax Service. To do this, you need to include the appropriate condition in the annuity agreement, prepare a notarized power of attorney in the name of the responsible person and sign the agency agreement.

If there are two or more recipients, each of them separately fulfills the responsibility for tax reports and payments to the budget.

How to register correctly

The contract must necessarily include the following points:

1. Data of the parties to the transaction, their full name, passport information, bank account details for transferring funds.
2. The nature of the operation is paid/gratuitous. In a paid transaction, the exact amount of contributions and the procedure for their payment are indicated.
3. Information about the object. Includes an accurate description and characteristics of the real estate, such as location address, layout, number of floors, dimensions and other parameters.
4. Conditions for calculating the value of rent.
5. Rights and obligations of the parties to the transaction.
6. Links to title documentation, the presence or absence of encumbrances or restrictions on use, a list of citizens who have the right to live in the apartment.
7. Liability is established for damage to property or its destruction.

lifetime rental agreement for an apartment

The rental agreement must be accompanied by a deed of transfer of the premises, signed by both parties.

If the recipient of the rent is a co-owner of the living space along with his spouse, then he will be required to have a notarized consent to the transaction.

What are the tax consequences of such an arrangement?

• In this case, the citizen will have to conclude a purchase and sale agreement and take into account in his tax return the amount received from neighbors for the apartment (1,800 thousand rubles).
• On the other hand, under a lifelong maintenance agreement with dependents, each of his parents will have an annual obligation to report the amount of income (240 thousand rubles) and pay personal income tax.
• In turn, neighbors will be able to submit a tax return and receive a tax deduction in the amount that they will pay when registering the apartment as their property. In addition, after registering their property rights, they are required to pay property taxes and utility bills.

Thus, all parties to the transaction have an obligation to pay taxes, in accordance with the type of income received or property acquired.

Where and how to find participants?

Close people

Often, close relatives of the owner - children, grandchildren, nephews - become rent payers. Elderly people can be sure that they will be taken care of. Relatives do not have to pay a large commission for registering an inheritance with a notary. But the owner may be a lonely person who cannot turn to the younger generation for help.

Firms

Often the payers are not individuals, but organizations. They can prove their solvency and often assume all responsibilities for caring for the elderly. Moreover, if an organization specializes in such transactions, it may have caregivers on its staff - professional assistants for disabled people.

Organizations also have a significant disadvantage - companies are interested in profits, so you need to be careful with them. It is believed that transactions with lifelong dependency are a danger for the elderly. Sometimes this is also a minus in the career of the realtor who certifies the contract. Only close people can care for older people with care and warmth. Therefore, such transactions usually do not concern anyone from the outside.

Rent payers can be found among adults and wealthy citizens who are reliable and would like to buy an apartment on favorable terms. It is better to look for renters among those who have enough time to care for an elderly person.