When the transfer of the forest is made, the right of ownership and the right of possession can be separated from each other so that the ownership of the forest is transferred to a new owner or new owners, but the right of possession of the forest remains with the transferor or is transferred to, for example, the middle generation. Retention of the right of possession may be for life or for a fixed period. The value of the right of possession is deducted from the fair value of the property, and thus the gift tax, inheritance tax, or purchase price is reduced.
-
In addition to the gift certificate, the right of possession can also be stipulated in a will or a deed of sale. Obtaining mere possession through a gift or will does not impose any tax consequences on the recipient. The right of possession can also be retained for the joint forest share.
-
Retention of the right of possession is suitable, for example, in situations where the recipients of the forest property are minors or students. Similarly, the procedure is suitable for situations where the transferor is still relatively young and wants to work in the forest himself. Retention of the right of possession is well suited for changes of ownership of non-productive assets (e.g. summer cottages). In this case, the rate of return used to calculate the value of the right of possession is 3% instead of 5%.
-
The holder of the right of possession is the actual forestry operator, that is, he or she receives timber trade revenues and pays forest management costs and forest taxes. The holder of the right of possession has the right to cut down the forest by the value of its growth, but he or she may not reduce the value of the forest property by excessive felling. The holder of the right of possession has the right not to consent to the sale of the property.
Retention of the right of possession for life
In the case of a retention of the right of possession for life, the yield percentage of the forest property (5%) is multiplied by a coefficient according to the age of the holder of the right of possession. The coefficients are as follows:
|
Age of the holder of the right of possession, years |
Coefficient |
|
Under 44 |
12 |
|
45 - 52 |
11 |
|
53 - 58 |
10 |
|
59 - 63 |
9 |
|
64 - 68 |
8 |
|
69 - 72 |
7 |
|
73 - 76 |
6 |
|
77 - 81 |
5 |
|
82 - 86 |
4 |
|
87 - 91 |
3 |
|
92 and over |
2 |
The percentage thus obtained reduces the fair value of the forest. For example, the fair value of a 65-year-old donor's forest is reduced by 40% (8 x 5% = 40%) due to the retention of the right of possession for life.
Retention of the right of possession for a fixed period
In the case of retention of the right of possession for a fixed period, the yield percentage of the forest property (5%) is multiplied by a discount coefficient, which depends on the number of years of the retention. The coefficient is for each year.
Examples of discount coefficients:
|
Duration of the retention of |
Discount coefficient |
|
5 |
3,99 |
|
8 |
5,75 |
|
10 |
6,71 |
|
12 |
7,54 |
|
15 |
8,56 |
|
20 |
9,82 |
|
25 |
10,67 |
However, the discount coefficient for retention of the right of possession for a fixed period may not be higher than the lifetime retention coefficient for the same person.
Disadvantages of the retention of the right of possession
If the change of ownership of a forest property results in the retention of the right of possession, the motive should be other than just a reduction in taxes. Retention of the right of possession also has disadvantages in the following situations:
-
The forest owner cannot deduct his or her own forestry costs for tax purposes (e.g. travel expenses), as only the forestry costs of the holder of the right of possession are deducted in the forest tax return.
-
The forest owner does not have the tax exemption for the procurement work if the right of possession has been retained.
-
The holder of the right of possession cannot use the forest deduction from a forest property to which another person has ownership. Even a forest owner cannot use the forest deduction until the right of possession of the forest has been transferred to him.
-
If the holder of the right of possession loses his or her legal capacity due to illness, for example, a permit to carry out felling and forestry work must be applied for from the Digital and Population Data Services Agency.
-
The retained right of possession of the forest increases the management fee of the holder of the right of permanent possession with full weighting (average calculated return per forest per municipality as the calculation basis).
-
Retention of the right of possession passivates the new forest owner.
Waiver of the right of possession
The right of possession may be waived by donating or selling the right of possession to the forest owner. In this case, it is a donation or sale of movable property. The sale of movable property is also subject to the capital gains tax if the property is sold to close relatives, and the purchase of the right of possession does not give rise to the right of forest deduction for the buyer.
The value of the donated or sold right of possession is determined using the fair value of the forest assets and the coefficients related to the retention of the right of possession.