October 13, 2023The transfer or sale of property between relatives, friends or acquaintances is something we often get asked about. This process might occur in any of the following situations:
- Parents transferring their real estate to their children or other relatives, with one party acquiring the property and the other retaining ownership or relinquishing it entirely based on the agreed-upon terms.
- Siblings inheriting a family home and deciding to distribute the property among themselves.
- Divorcing couples transferring jointly-owned property to one spouse as part of the divorce settlement.
- Business partners transferring ownership of a commercial property to a new investor or dissolving the partnership, resulting in a property transfer.
- Two individuals signing an agreement for property transfer, where one person agrees to take care of the other (typically an elderly person), and in exchange, the property ownership is transferred to the caregiver.
While common, this process is often misunderstood or unnecessarily complex. In this guide, you can find answers to all your questions related to property transfers, and learn which option is the cheapest.
How can property be transferred in Bulgaria?
There are several options for transferring property:
- Transfer property ownership via a donation
- Transfer property ownership via a purchase
- Transfer property ownership via a lifetime alimony contract
- Transfer property ownership via a written legal will
Each option has benefits, limitations, unique characteristics, which might make it unsuitable for some situations.
Property ownership transfer via a Donation
One of the most common options for changing the ownership of real estate is transferring the property by donation. When it comes to transferring property by donation, the contract can include any type of immovable property, with real estate being one such type.
How is the Property ownership transfer via a Donation carried out?
Like any other procedure for transferring ownership of immovable property, this one is also carried out in front of a notary, and it must be done in the area where the property is located. The process is accompanied by documentation that must be prepared in advance and presented in order for the donation to be made.
What fees and taxes are associated with the property ownership transfer via a donation?
Something distinct about this approach is that it involves the least amount of taxes and fees, so in many ways – it’s the cheapest way to transfer property ownership in Bulgaria.
In cases of real estate property transfers via donation, the transaction and contract is devoid of material character. Meaning, such contracts do not involve exchange of money in the process between the two parties – only the property.
In order for the transfer transaction to take place, it is necessary to pay taxes and fees regulated in the Law on Local Taxes and Fees. There are three types of external payments (fees or taxes) needing payment with this property transfer option:
- Payment of Local Tax: Dependent on the ordinance of the relevant Municipality.
- Tax rate for a donation between spouses or direct relatives (parents, children, grandchildren) is 0 percent.
- Tax rate for a donation between siblings and their children varies between 0.4 – 0.8 %
- Tax rate for a donation between persons other than the above, are set between 3.3 – 6.6 %.
2. Payment of Notary fee: Paid to the notary certifying the transfer of the property by donation, calculated on a certain scale and paid as a percentage of the certified material interest, according to the Law on Notaries and Notarial Activities.
3. Payment of registration and transcripts of the transaction: 0.1% of the certified material interest, but not less than BGN 10, and is collected by Registry Agency
Who is donation-based property transfer option suitable for?
The procedure is used when transferring housing between relatives, and the main feature is that the property becomes the free personal property of the donee – this means that regardless of whether he gets married, the housing belongs to him and only him. in contrast to the purchase of property during marriage, when the home is owned by both spouses.
Property ownership transfer via a sales contract
An real estate property can also be transferred via a sales contract, but here the costs are significantly higher than when it is transferred by donation. The transfer of property through sale and purchase is the second most popular way to change ownership.
The advantage of this approach is the greater security that the one who acquires the property receives. The same cannot be said for those that attempt to use this approach to perform a fictitious sale – a process in which there is no real payment, as this procedure can be sanctioned by law.
The DOT.WON Team of Real estate agents advises that the parties refrain from a fictitious purchase and sale, as this method resembles concealing a donation and such transactions are sanctioned by law.
How is the Property ownership transfer via a sales contract carried out?
The buyer and the seller participate in the sales contract, and the change of ownership takes place on the basis of a predetermined specific amount, which the buyer is obliged to pay.
To carry out the purchase and sale, it is necessary to draw up a preliminary contract to be signed by both parties. It should contain all the information regarding:
- the subject of the agreement (the property),
- the sales price of the property,
- the conditions and term for its acquisition,
- the method and term for payment of the sale price,
- the moment of handover of the property,
- the amount of the deposit/deposit, rights and obligations of the parties and others .
Before that, however, it is necessary to check the property for encumbrances – mortgages, foreclosures and others.
What fees and taxes are associated with the sales-based property ownership transfer?
The new owner is obliged to pay a local tax to the respective Municipality in which the newly acquired property is located. There are also notary fees, registration fees, and professional services fees, such as payments to a real estate agent, lawyer, or engineer, if such were involved in the procedure.
Who is sale-based property transfer option suitable for?
With this option, the person who acquires the real estate has greater security in the acquisition of the property, guaranteed by the contract type and the monetary exchange. The main advantage of this method is that the transaction cannot be spoiled by third parties in any way.
Property ownership transfer via a Re-registration of real estate through a lifetime alimony contract
Another possible option for transferring property is through a lifetime alimony agreement.
How is the Property ownership transfer via a Re-registration of real estate through a lifetime alimony contract carried out?
When transferring property through a lifetime alimony contract, it is key that the notarial deed contains the most accurate and clear description of the responsibilities of the parties.
In a typical scenario, alimony might include paying a specific amount of money or hours spent in care monthly, paying household bills, buying food, medicine, and more. In other cases, alimony might simply mean taking care of the property owner due to old age or illness.
To avoid potential misunderstandings when choosing this approach, it is necessary to detail all obligations in the notarial deed, and appropriate legal council.
What fees and taxes are associated with the property ownership transfer via a re-registration of real estate through a lifetime alimony contract?
With this property transfer approach, there are taxes and fees involved, such as notary fees. You can check the costs you have to pay for the notarial deed against the price of your real estate in the Tariff for notarial fees under the Law on Notaries and Notarial Activities.
Typically the fees and taxes with this approach will be lower due to the contract nature of this type of agreement.
Who is the re-registration of real estate through a lifetime alimony contract option suitable for?
This approach is mainly used for parents who are property owners, and their children or close relatives, who they might ask for care in exchange of the property. There are cases, in which, the two parties are not related via blood line.
This approach allows the owner of the property to retain the right to use it as long as they live and at the same time retain their real right of use, i.e. their access to the property is terminated only and only when their death occurs.
Only natural persons can be parties to the contract. That is, it is not possible for legal entities in the form of commercial companies, associations or foundations to be transferors or acquirers in this legal relationship.
This type of contract avoids the risk of contesting a donation due to the fact that often with such contracts the reserved part of the remaining heirs is affected. As this contract is remunerative and not gratuitous like the donation, it would be considerably more difficult for third-parties to challenge it, even if it prejudices their reserved parts.
Property ownership transfer by will
How is the Property ownership transfer via will carried out?
The property ownership transfer via a will is carried out through the following steps:
The testator (property owner) creates a will, which can be either a notarial will or a handwritten will.
In the case of a notarial will, it is executed by a notary and witnessed by two individuals.
For a handwritten will, the testator writes the entire document by hand and signs it themselves.
Until the death of the testator, the property remains under their ownership.
After the testator’s death, the property is acquired by the designated heirs as specified in the will.
What fees and taxes are associated with the property ownership transfer via a will?
The fees and taxes associated with the property ownership transfer via a will may include:
- Notarial fees: If the will is a notarial will, there may be fees charged by the notary for the execution of the document.
- Probate fees: After the testator’s death, the will usually needs to go through a legal process called probate. There may be fees associated with filing the will and administering the estate during probate.
- Inheritance taxes: Depending on the jurisdiction, there might be inheritance taxes imposed on the transfer of property from the deceased testator to the heirs specified in the will. The specific rates and exemptions vary by location.
Who is the will-based property transfer option suitable for?
The will-based property transfer option is suitable for individuals who wish to determine the transfer of their property upon their death. It is particularly relevant for:
- Property owners who want to ensure their assets are distributed according to their specific wishes after they pass away.
- Individuals who have specific beneficiaries in mind for their property and want to avoid potential disputes or complications.
- Those who want a straightforward and legally recognized method of property transfer without the need for re-registration or immediate change of ownership during their lifetime.
- Individuals who want the flexibility to modify their will as their circumstances change, allowing them to update their property transfer instructions accordingly.
Which property transfer option should you choose?
When it comes to transferring real estate between close relatives, undoubtedly the most advantageous option for them is to do it by donation. Transfer of ownership by donation even has more advantages than transfer by will, as the fees are significantly lower than those of the inheritance procedure.
If the two parties, involved in the exchange are not close relatives, and depending on the agreement between them both, a sales-based or an alimony-involved exchange might be a more stable approach.
In all cases, the DOT.WON team will provide council, alongside our legal professional partners, to ensure that the approach taken is the best for the case, while also abiding by the local laws and regulations.
