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.

Contents of the agreement

The main and most essential condition of the contract is that the recipient of the rent transfers the property into the possession of the rent payer . In return, the latter undertakes to pay certain amounts every month (or at any other specified period of time).

According to the agreement, one of the parties pays rent to the second party constantly and for life, and receives the apartment into its own possession only after the death of the second party.

This agreement comes into force immediately after conclusion and from that moment the first party becomes the nominal owner of the property.

A sample real estate rental agreement can be downloaded here.

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.

Pitfalls of this type of deal

Of course, at first glance, a lifelong annuity agreement is a very profitable solution, since it allows you to buy an apartment several times cheaper than its real value on the market.

However, if a person decides to enter into such an agreement, then he should remember some of the pitfalls of this procedure, no matter what side of the process he is on.

Elderly people very often fear for their lives, because they understand that they have partly put it at stake.

To protect themselves, recipients must remember that in any controversial situation they can turn to law enforcement agencies to protect their interests. To do this, older people need to come to the territorial prosecutor's office and write a statement addressed to the prosecutor.

Pensioners are recommended to sign the agreement in the presence of a relative (even a distant one). The other side must see that the pensioner is not alone.

For rent payers, the situation may turn out in such a way that the relatives of the apartment owner will try to terminate the contract, relying on the fact that the pensioner was misled or was out of his mind when he signed the papers.

It is quite difficult to get out of the second situation, but it is possible:

1. Before concluding an agreement, the annuity payer must receive from the pensioner certificates from drug treatment and psychiatric dispensaries, certificates about the state of his physical and psychological health. The last two certificates will have evidentiary value only if the date of their issuance coincides with the date of signing the contract.
2. The rent payer is recommended to keep all documents, receipts, checks and even the most insignificant pieces of paper confirming that he complied with the terms of the agreement.
3. The choice of the person with whom the contract will be concluded must be approached with all responsibility. Of course, no one is immune from deception, but by objectively assessing a person, the rent payer can save himself from many troubles.

To avoid certain pitfalls, both parties are advised to find lawyers who can analyze the contract from the point of view of each party.

And, of course, the agreement must be notarized .

Of course, it will take money and time to attract specialists, but each of the parties will be insured against further legal red tape.

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 draw up a lifelong annuity agreement for an apartment

The main characteristic of an annuity contract is its riskiness. The benefits of the parties may be far from equal.

For example, a sickly-looking old man will turn out to be a long-liver, and the buyer will pay rent for many years.

At the same time, the cost of the apartment in fact may turn out to be much more than when purchasing an equivalent object. Among Russian realtors, it is generally accepted that rental transactions “smell bad.”

This scheme is often used by various scammers. There are situations when the annuity recipient suddenly passes away due to an accident.

As for lawyers, they don’t see anything wrong with rent. The owner is free to dispose of his own property at his own discretion.

And if a person wants to live the rest of his life without financial difficulties in exchange for the transfer of housing after his death, then there is no reason to prevent this. The main thing is to get the deal done correctly.

Parties to the agreement

The parties to a life annuity transaction are the payer and the recipient. The recipient is an individual, who is also the owner of the apartment.

His age or health status does not play a role. It is important that he alone owns the property.

If there are several owners, then it is necessary to conclude an agreement with all of them, or it is necessary to allocate a share in the right of common ownership and conclude a rent for.

The rent payer can be any person with whom the apartment owner wants to enter into a transaction.

This can be either an individual with Russian citizenship or a legal entity registered in the Russian Federation.

Video: what is a life annuity agreement

The only requirement is the economic ability to pay rent. Therefore, it is possible to conclude a life annuity agreement with the municipality.

Procedure for concluding a transaction

When concluding a life annuity agreement, it is advisable to adhere to the following algorithm:

Sample filling

The life annuity agreement includes the following items:

Here, the basis is a violation of the essential terms of the contract.

A significant violation is considered to be damage to the recipient due to the fact that he does not receive what he expected when concluding the transaction.

If it is impossible to terminate the contract, disputes are resolved through court.

According to statistics, about half of annuity contracts are terminated. It is not uncommon for recipients, after receiving payments for several years, to terminate the transaction due to lack of payments.

At the same time, the payer cannot prove that he paid everything correctly. Therefore, each payment must be confirmed with a receipt, photo, video.

Is it possible to sell the apartment in this case?

Often questions about life annuity concern the right to dispose of property. After registering the contract, the payer has legal ownership.

That is, theoretically, he has the right to sell the property. In practice, with rent, no one has the right to evict the owner from his property.

The payer is the owner, but the apartment is burdened with rent. If you still need to sell the apartment, the owner (recipient) must be provided with alternative housing.

It should be no worse than the previous one. In this case, the new housing is subject to the encumbrance removed from the original property.

This procedure is quite confusing and risky, so it is rare in practice. Another option is possible when the apartment is sold together with the rent recipient and the encumbrance.

In this case, the new owner assumes obligations to regularly pay the required payments to the annuity recipient.

If the new owner violates the terms of the contract, then the previous owner is also liable along with him.

Advantages and disadvantages

Any transaction involving the alienation of real estate has its pros and cons. This is also true for a life annuity transaction.

If we talk about the benefits for the annuity recipient, then this is the opportunity to provide stable additional income.

Due to this, the quality of life can significantly improve. At the same time, the owner of the apartment is confident in his security until his death.

In fact, he sells at an unspecified price and at the same time retains the right to use the living space.

For the rent payer, such a deal is good because you can get your own home here and now.

Moreover, if the relationship with the recipient is good and the square meters allow, you can immediately move into a new apartment.

It is also important that the annuity agreement is extremely rarely disputed after the death of the recipient.

If there is documentary evidence, it is almost impossible to challenge the transaction. One of the disadvantages is the need for notarization of the contract.

In addition, the slightest failure to fulfill the terms of the contract may become the reason for its termination and the costs already incurred by the payer will not be reimbursed.

Moreover, the recipient has the right to demand compensation for losses. The disadvantage is that in order to receive ownership of the apartment and complete disposal, you may have to wait a very long time.

And the costs can significantly exceed the actual cost of the apartment.

In general, many more different pros/cons can be cited. But you can also find flaws in any real estate alienation transaction.

In essence, a lifetime annuity agreement is a fairly profitable option for improving living conditions for the recipient and the best way to obtain housing for the payer.

As for the negative aspects, if the contract is drawn up correctly, most of them can be foreseen and prevented.

A precedent-setting decision was made by the Simonovsky District Court of the capital on the so-called life annuity agreement.

For many lonely old people, such an agreement is the only way to provide themselves with tolerable living conditions, receive a small additional income, and, in some agreements, help in running the household. Such an agreement is also beneficial for the other party. Anyone who undertakes to pay extra and help an elderly person receives ownership of his apartment. It is clear that with such a scheme, infirm people run the risk of running into scammers who can either drive the old man away from the world, or simply deceive him with payments.

The buyer also takes risks. As the court decision shows, he can immediately lose both the right to housing and all the money paid.

Meanwhile, life annuity contracts are becoming increasingly popular both in Moscow and in other Russian cities. At the same time, the number of scoundrels trying to profit from this type of cooperation with older people is also growing. How to deal with deception? Not every elderly person will be able to competently defend their interests in litigation; some are not even able to correctly fill out documents in court. What should they do? The answer is provided by an illustrative story with one such agreement.

That is why a fresh court decision is so important, which helped an elderly woman get rid of bonded rent.

An 82-year-old woman, a disabled person of the second group, entered into a lifelong maintenance agreement with her friend in 2008, according to which she transferred her ownership of her apartment in Moscow. Moreover, according to the terms of the agreement, the rent payer agreed to provide the elderly woman with housing, food, clothing, care, and necessary assistance, as well as pay her monthly rent payments and repair the apartment.

At first, the “good friend” regularly paid the old lady the promised contributions every month. True, immediately from the moment the contract was concluded, she refused any real help, including renovation of the apartment. And since May 2014, the new owner of the apartment stopped making monthly payments to the pensioner. After which the tenant even had to pay utility bills at her own expense so that the electricity in the apartment would not be turned off.

The pensioner turned to the prosecutor's office to protect her rights. Having established that the terms of the contract were indeed being violated, the prosecutor defended the rights of the 82-year-old Muscovite and filed a claim with the court to terminate the annuity contract. The court supported the position of the prosecutor's office. The court decision has already been sent to the Rosreestr department for re-registration of the apartment back to the former owner.

At the same time, the payments that the elderly woman received from the rent payer for 6 years will not have to be returned to her. The fact is that, according to the Civil Code, if the rent payer significantly violates its obligations, the rent recipient has the right to demand the return of the apartment or payment of the redemption price. In this case, the rent payer has no right to demand compensation for expenses incurred in connection with the maintenance of the rent recipient.

This story ended well. But, unfortunately, often people who sign an annuity agreement sign their own death warrant. At the end of last year, the capital was shocked by the death of 62-year-old Tamara Khokhryakova at her entrance, who was suddenly injected with a syringe with poison by two unknown men.

As it later turned out, the organizer of the crime was realtor Vitaly Studenikin, who created an entire “business” of killing pensioners. At least six more people became victims. All of them, shortly before their deaths, entered into life annuity agreements.

However, sometimes an annuity agreement is mutually beneficial. Old people receive a significant monthly increase in their pension plus other services provided for in the contract, and, say, a young couple gets the opportunity to eventually get an apartment for which they have no way to save up. The main condition is one thing - that both parties turn out to be decent people.

By the way, this scheme for buying a home has long been practiced in Europe. In many countries, you can purchase an apartment at a price significantly lower than the market price, but with the caveat that the owner will live in it until the end of his days.

According to Russian legislation, “lifetime annuity” is a set of rules of law governing the transfer of real estate from one person to another in exchange for rental payments to the previous owner of the property. Simply put, the buyer pays the seller a one-time portion of the cost of the apartment and undertakes to pay him the monthly rent specified in the contract in equal shares throughout the life of the property owner.

A distinctive feature of a life annuity is that the seller of such real estate still continues to live in the premises that have already been sold, but loses the opportunity to sell or donate the apartment.

According to real estate agencies, in Russia, an additional payment to a pensioner in the amount of 10-15 thousand rubles is usually established for the right of ownership under a annuity agreement. Sometimes a mandatory condition of the transaction is caring for the old man - the buyer will have to buy him medicine, food, and help if the pensioner is admitted to the hospital. Often the contract provides for payment of funeral expenses. But all this, according to lawyers, is discussed individually by the parties when concluding an agreement.

The main document drawn up in such transactions is a rent agreement, which regulates all parameters relating to the property, as well as the terms and conditions of payments. The legislation of the Russian Federation determines that the amount of the minimum rent must be at least one minimum wage, and when it is indexed, there must be corresponding increases in payments.

It should be noted that contracts for lifelong annuity and lifelong dependency (purchase of food, medicine, cleaning, etc.) are not legally connected in any way. Therefore, in such cases, two contracts are concluded at once.

Help "RG"

The cost of apartments under rental agreements in Moscow and the amount of rental payments for them

According to realtors, one-room apartments are most often sold under a rental agreement in Moscow. For example, now in this way you can buy a one-room apartment on the outskirts for 2.3 million. At the same time, the pensioner, who is now 66 years old, will need to pay 15 thousand rubles a month for life.

But a one-room apartment closer to the center is sold for 3.7 million rubles. The owner is 80 years old. She will need to pay 30 thousand rubles a month.

A two-room apartment in a good area is offered under a rental agreement for 2.2 million rubles. It is inhabited by spouses aged 60 and 70 years. They will need to pay an additional 30 thousand rubles per month. This apartment is sold immediately as a property, but with a delay in moving in and registration.

Explanations of "rg"

Advantages and disadvantages of a rent agreement for property owners:

1. The seller and his family members have the right to live in their apartment until their death.

2. The seller of the apartment has a regular source of income in the form of rent payments.

3. The contract may stipulate a range of services that the payer will provide to the annuitant for the rest of his life.

4. There is a danger of encountering dishonesty of the rent payer, who evades fulfillment or does not properly fulfill the terms of the contract. In this case, in order to terminate the annuity agreement or call on the other party to fulfill its terms, you will have to go to court or the prosecutor's office.

5. There is a risk that the “buyer” will turn out to be a fraudster and, being interested in the death of the “seller,” will contribute to this through his actions.

Expert opinion

Konstantin Aprelev, vice-president of the Russian Guild of Realtors:

Today there is a fairly serious criminal component in this area of ​​business. There are companies that specialize in this, and, of course, there is a threat that, having received an apartment, unscrupulous people deliberately create worse conditions for the pensioner, thereby shortening his life. Therefore, I consider entering into such contractual relationships with strangers or with some companies a rather high-risk situation, especially for single pensioners.

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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.

General points

The concept of rent is not well known to average citizens. For this reason, concluding such a transaction without involving lawyers often causes various problems caused by a misunderstanding of the essence of the operation.

The main essence of a life annuity is that the home owner transfers his property to another person, and in return receives maintenance, which is provided for life.

Thus, the annuitant has the opportunity to ensure a decent and comfortable old age.

The benefits for the renter are also obvious. He buys an apartment for himself. There is no need to register or save money.

It is enough to pay a certain amount monthly to the owner of the home. Moreover, the amount of the amount is not precisely defined by law.

The main thing is that it is no less than the established minimum of two subsistence levels. Therefore, everything depends only on the requests of the homeowner.

But often the parties only evaluate the advantages and think little about the disadvantages.

The main misconception is that many people believe that signing a rent agreement with the owner of the apartment allows them to have full control over the housing.

Another point is that some subjects believe that it is impossible to terminate the annuity contract. That is, the main thing is to conclude a deal, and there is no need to fulfill these obligations in full.

But registration of an annuity is a transaction, like any transaction it can be terminated. There are still a lot of such nuances and it is better to know about them before signing a life annuity agreement.

What it is

Although the term “rent” itself is not entirely familiar to most citizens, the essence of the actions behind it is quite clear.

A life annuity is an agreement between the parties regarding the transfer of property from one person to another.

In this case, the following condition is subject to compliance - the one who receives is obliged to pay him monthly (periodic) maintenance until the end of the life of the person who transferred the property.

The law defines only the general concept of life annuity and its basic conditions. In essence, rent is capital, an apartment under a lifelong maintenance agreement is a commodity.

Commodity is exchanged for capital. Detailed conditions are established by agreement of the parties. For this reason, the contract requires notarization and state registration.

The contract stipulates not only the main obligations of the parties. It is important to provide for all possible nuances.

For example, the following nuances deserve special attention:

What is the purpose of the document

The purpose of a life annuity agreement, like any other agreement, is to define in detail all the terms of the transaction. Because even the little things matter.

First of all, it is important to accurately identify the object involved in the transaction, in relation to which the contract is concluded.

After the death of the owner, no one will probably be pleased to receive an apartment that is completely different from the one for which the rent was paid. It is important to clearly state the cost of the annuity, and this is important not only for the recipient.

At the stage of preparation for the transaction, the parties agree on the amount of payment, its frequency and expression (in cash or in kind).

But as the interaction progresses, the recipient may begin to demand more money or additional assistance.

Or the payer will reduce the payment amount, make payments irregularly, etc. For such cases, the amount of rent is strictly stipulated by the contract.

There are other conditions worthy of attention, but the clause on termination is especially worth noting. Naturally, in case of non-compliance with the contract, it can be terminated.

But it matters how you do it. In this case, the rent recipient may request the return of rights to his property or, as an alternative, offer the purchase of the property.

The law states that the purchase of a rental property is carried out at the price of the owner’s annual maintenance, unless a different price is specified in the contract.

To avoid unpleasant situations, it is important to specify in the contract the cost of the apartment in accordance with average market prices.

Legal regulation

The completed document must be certified by a notary and is subject to state registration. The provisions on annuity are described in detail in.

Difference between life annuity and dependent annuity

Fixation of rent payment

Features of payments

You can arrange the transfer of rent payments in the following ways:

1. Via bank:
   Deposit cash into the recipient's account through an operator;
2. Transfer non-cash money from account to account (from card to card) through an operator or using.
3. By postal transfer;
4. By drawing up separate receipts;
5. For each payment, put a separate mark on the contract;
6. Through a notary's deposit (if the recipient avoids receiving the money).

The easiest and most convenient way to make payments is non-cash, because:

• at any time you can request a statement of transactions, which will always reflect the amount of the transfer;
• the bank will not refuse to accept or transfer funds;
• when used, rental payment can be made at any time anywhere;
• You can also activate automatic payment services at the bank; a fixed amount will be automatically transferred to the recipient's account every month.

The only possible drawback of this method is the lack of an account and (or) bank card with the rent recipient and (or) rent payer.

Comparison of different types of annuities

Difference between lifelong and permanent forms of annuity

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Operations with property for the payer

Features and conditions of the event

The real estate is pledged to the rentee.

For movable things, the payer is obliged to provide security for the fulfillment of the obligation, that is, to guarantee that he will fulfill the obligation.

The owner may alienate the property; in this case, the rental obligation will pass to the new owner, and the previous owner will bear subsidiary liability.

With lifelong maintenance, the disposal of residential premises (sale, donation, barter, rental or rental) in which the recipient of payments lives requires the latter’s consent.