A family can rent their properties tax-free. For this purpose, the family members set up a family GbR. The parents then sell their properties to them, setting the increase in value as high as possible. Instead of paying the purchase price, however, the parents collect a purchase price claim, which the family GbR now pays off with the rental income of their properties. In the meantime, parents also receive interest. These are subject to preferential taxation at 25 %. The depreciation and the interest costs at the level of the Familien-GbR in return lead to the fact that the family can now rent the properties tax-free. Because the rental income is then less than the depreciation and the interest costs, so that no tax arises.

Anyone who hears from a tax consultant that can be something tax-free often sounds too good to be true. For example, we claim that a family can rent real estate tax-free.

Admittedly, fairy tales of this kind are heard everywhere today, as in times past. There is always a real core behind it. Otherwise, the fairy tales would expose themselves. Don’t worry, we don’t want to sell you an enchanted king’s castle hidden behind a thorn wall. Even if the motif may offer an incentive for a cozy family evening with the good, old fairy tale book of the Brothers Grimm.

The tools to approach the goal, we now take in hand. On the one hand, we need a basic knowledge about the legal form of the GbR. This is provided by the BGB. In §§ 705 BGB we look up the character of a GbR and how to found it. Furthermore, we should be informed about the sale of real estate. Although we want to report on how a family can rent their properties tax-free, this aspect is important for our concerns; You'll see, it's beneficial. Then we also have to deal with the taxation of income from the rental of real estate. In particular, depreciation is important here (§ 7 EStG). Last but not least, there is the issue of capital gains tax, the rules of which are codified in § 43(1) EStG in conjunction with § 20(1) and (2) EStG.

Now we can get in. We want to start with a family with two parents and two children. Of course, this also works with other family constellations. In addition, parents should have an assumed real estate asset of about EUR 4,000,000, which they rent for residential purposes, for example. The value of the properties has risen to EUR 6.000.000 since the purchase. However, rental income should continue to generate a 5% return, which corresponds to annual income of EUR 200,000.

The first step towards tax-free real estate rental is the establishment of a family GbR. The parents, if the children are still minors, can also arrange the foundation on their behalf. The advantage of this is that the establishment of a GbR does not meet any formal requirements. The resolution of the shareholders alone creates a GbR. Neither a written social contract nor a notarized certification or certification are required here. Nevertheless, at least a written social contract is generally recommended. The purpose of Familien-GbR is, of course, the rental of real estate.

Next, the parents sell their properties to the newly founded family GbR. However, they do not receive any money for it; that comes later. Rather, the parents receive a claim right that exists against the family GbR. One could now assume that this demand is made interest-free in order to save the children who are now involved in the family GbR these additional costs. But interest also brings tax advantages. The interest rate is currently realistically 3%.

Now we come to how the family manages to rent their properties tax-free with their GbR. Because now, within the framework of taxation, we are based on annual depreciation. And we calculate these on the basis of the acquisition costs incurred by the family GbR through the property purchase. We therefore expect a depreciation of 2% per year on the acquisition costs of EUR 6,000,000 (possible acquisition costs should be ignored for simplification). In figures, the annual depreciation rate is EUR 120,000. The advantage here is of course that this does not directly reduce the real profits. It is only an amount that can be deducted from the taxation of rental income.

And even here it shows that the family can rent their properties almost tax-free in this way. After deduction of the depreciation, a taxable amount of EUR 80,000 remains of the income of EUR 200,000. The four family members share this amount, however, whereby each person can set their basic allowance. We set it for simplification with EUR 10,000 each. In this way, only EUR 40,000 of the income is subject to taxation. Of these, EUR 10,000 is attributable to each family member. With such a low income, the tax is then incurred only with a very low personal tax rate. Thus, the tax is in the order of only EUR 2,000. As a reminder: each family member is entitled to a share of the rental income of EUR 50,000!

With the interest on the purchase price claim of the parents, however, we can completely reduce taxes to zero. With an annual interest rate of EUR 180,000, the last remaining taxable income also melts away.

It is all well and good that the family can now rent their properties tax-free. But we all know that there is inflation at the moment. So we should ask ourselves what will become of tax-free rental if rents rise sharply. Even without inflation, one should consider the general trend towards rising rents in housing rental. And we do.

Assuming over time the rental income of the family GbR increases by 20%, which of course represents a very high increase. Nevertheless, we are able to keep the increased rental income tax-free via the interest on the purchase price claim of the parents. In addition to the consistently high depreciation, the family GbR can also continue to claim its debt interest as advertising costs in the tax return. So we are talking about increasing rental income to EUR 240,000. As before, we deduct depreciation (EUR 120,000) and interest costs (EUR 180,000) and are then still able to keep the income tax-free.

You can therefore calculate in advance when the annual rental income leads to taxation. To this we add the depreciation and interest as well as the basic allowances of the family members. So we find that the family can rent their properties tax-free, as long as the annual rental income is a maximum of EUR 340,000.

The taxation of interest at the parents takes place according to the regulations on capital gains tax. They depart from the general rules on income taxation. Instead, they provide for flat-rate taxation with a fixed tax rate of 25%. However, no advertising cost deductions are allowed here. Only a savings lump sum of EUR 801 (double for married people together) is charged.

For an interest payment of EUR 180,000, after deduction of the savings lump sums on the remaining amount EUR 44,599.50 in capital gains taxes are incurred.

At some point, however, the repayment of the parental purchase price claim is completed. From then on, interest will no longer be used as a tax-shaping instrument. Precautions should therefore be taken. For this, a conversion of the Familien-GbR into a Immobilien-GmbH is the best option. Because then it can make use of the possibility of extended land shortening pursuant to § 9 no. 1 sentence 2 GewStG. Or in other words: it can save the trade tax.

But Immobilien-GmbH has other tax advantages for the family. Because without business tax, it is only subject to corporate tax with a tax rate of 15 %. Of 100 % of the rental income, 85 % remains as profit in Immobilien-GmbH. It can refinance Immobilien-GmbH in new rental properties.

But we want to know how taxation affects family members. To this end, we must take into account the fact that a possible distribution of profits to the family members who have become shareholders after the conversion GmbH is incurred by them with a flat-rate capital gains tax of 25%. Although there is the aforementioned lump sum, but this plays at most a minor role in the magnitude of the profits considered here.

So if we expect 25% tax on the GmbH’s 85% net profit, we find that the family’s taxes with a Immobilien-GmbH total only 21.25%. And this is still impressively cheap, if we add the 15 % corporate tax of the GmbH (i.e. a total of 36.25 % of taxes). For profits of about EUR 60,000 per person, the top tax rate applies to taxation under the income tax. As a rule, however, it is more realistic to expect a tax of 50%, because other tax factors are also taken into account (solidarity surcharge and church tax, for example).

Do you remember that we promised you that a family could rent their properties tax-free? Well, somehow we have successfully demonstrated our project. But if you look back in section 4.2, you see that there are probably hidden taxes. But with rental income of up to EUR 340,000, you can cope with the almost EUR 45,000 in capital gains taxes. However, it is also true that the interest contributes to the family GbR being able to rent out its properties completely without taxes.

So it seems that our fairytale castle is behind a rose hedge that has at least a few thorns. Buy it anyway, because it is worth it. Or would you rather wait for other fairytale opportunities?