The transfer of real estate – either within the family or between third parties – regularly triggers various tax consequences. If income or gift tax arises, the agreement of a temporary or lifelong right of residence is appropriate. Because the right of residence reduces the value of the gift and leads to income tax (additional) acquisition costs. They sometimes have an impact in the context of depreciation.
Principle 1: Transfer real estate without housing
Especially in the family group, there is always a transfer of real estate assets. As a father or mother, for example, you want your children to take over an existing rental property, manage it and achieve corresponding surpluses. However, the Treasury also wants a share of the transferred assets, because the so-called gift tax of up to 30% is due for free transfers.
The same applies to privately used properties, such as a single-family house. If this has a certain value, the gift can also be subject to the inheritance and gift tax. In the case of rental properties, the legal successor shall continue the depreciation of the legal predecessor if the property is transferred wholly or partially free of charge. If the property is already completely depreciated or if there is still an AfA tax base that is significantly below the current value of the building, tax potentials are not used optimally.
A possible design therefore consists in the sale of the properties to the future owner. At the same time, the sellers should reserve a right of residence. It leads to the previous owners being allowed to continue to use the apartment and reduces the amount of the taxable gift with the corresponding capital value.
2 Privately used properties with residential rights transferred to legal successors
Real estate used exclusively for private residential purposes is in principle irrelevant for taxation. At the same time, due to the market development of recent years and decades, and especially in urban areas, they have often reached considerable values. This can lead to a high burden of inheritance and gift tax if the tax exemption for family homes (§ 13 (1) number 4a to 4c EStG) does not apply.
For the exemptions of numbers 4b and 4c, the acquirer must continue to use the family residence for own residential purposes for at least 10 years after the donation. If the property is not a family home or is used elsewhere, for example for a rental to third parties, the tax office sets inheritance or gift tax in full. The previous “zero decision” is changed in these cases according to § 175 (1) sentence 1 no. 2 AO, due to a retroactive event.
A right of residence can immediately reduce the burden of gift tax. Such a design is always suitable if it is already known at the time of transfer of the property that there is no (10-year-long) use for own residential purposes or that there is no family home in the sense of the norm.
2.1. Agreement and effects of the right of residence
The right of residence reduces the value of the gift according to § 10 (1) ErbStG. The determination is therefore carried out in three steps:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.