Gifting property:
Structuring the transfer during your lifetime correctly.
Transferring the house to the children during your lifetime – tax-efficient, but only with the right safeguards in place. This guide shows how allowances can be used repeatedly, what usufruct and rights of residence achieve, which rights of reclaim belong in the contract – and where the limits lie.
Why transfer during your lifetime?
Three reasons drive anticipated succession: First, tax – the gift tax allowances (€400,000 per child and parent) become available anew every ten years, so those who start early can transfer larger assets tax-free as well. Second, orderly succession: the property goes where it is meant to go – without community of heirsand disputes. Third, compulsory portion planning – more on this below, as this is where most mistakes are made.
Usufruct, right of residence and rights of reclaim
- Usufruct: The donor retains all uses – they may continue to live there or let it out and keep the rent. The capitalised value of the usufruct also significantly reduces the taxable value of the gift.
- Right of residence: The personal right to inhabit certain rooms – narrower than usufruct (no right to let), but often suitable when transferring a self-occupied property.
- Rights of reclaim: The core of any good transfer agreement. Reclaim should be agreed for at least the following cases: Predecease of the child, Sale or encumbrance without consent, Insolvency or compulsory enforcement and Divorce of the child. Without such clauses, the property may be irretrievably lost in a worst-case scenario.
- Support benefits: Care obligations, recurring payments or life annuities can be agreed and secured as consideration.
It cannot be done without a notary
The gift of a property requires notarial certification (§ 311b BGB); the notary handles the conveyance and land register execution. This is not mere formality: during the notarial appointment, usufruct, rights of reclaim, allowance for compulsory portions and equalisation obligations among siblings are tailored precisely – exactly the points that standard-form contracts omit.
Gift tax, real estate transfer tax, income tax
The gift tax is calculated using the market value less the capitalised usufruct – so even a valuable property often remains below the tax-free allowance. real property transfer tax does not apply to gifts to children and spouses (§ 3 GrEStG). With regard to income tax, the following applies: the gratuitous transfer does not trigger speculation tax; however, the recipient assumes the donor's acquisition data ("stepping into their shoes") – relevant if they later sell. Caution is advised with partly remunerated transfers (assumption of debts): these can be proportionately taxable.
Compulsory portion and social welfare recourse: the ten-year traps
Two time limits determine whether the gift achieves its protective effect – and both are regularly underestimated. Compulsory portion: Gifts are added proportionately to the estate for ten years (§ 2325 BGB); where usufruct or a right of residence is reserved, case law often holds that the time limit does not even begin to run – anyone wishing to undermine the compulsory portion of unloved relatives often achieves the opposite with the usufruct solution. Details in the Compulsory Portion Guide. Social welfare recourse: If the donor becomes impoverished within ten years – typically due to care home costs – the social welfare office can reclaim the gift under § 528 BGB. Both risks should be openly addressed before certification takes place.
Gifting is not always the best solution
Anyone whose retirement provision essentially consists of the property should, in case of doubt, keep it: usufruct protects the right to live there, but not against every turn in life – and reclaiming it is easier said than done. Alternatives such as a will with a well-considered succession arrangement, partial transfers in stages or a sale in return for a life annuity should be included in the comparison. Anyone who, conversely, has just inherited a property, will find the appropriate first steps there.
Briefly answered
How often can I make use of the tax-free allowances?
Anew every ten years: each child can receive €400,000 tax-free from each parent, grandchildren €200,000, and spouses €500,000 between each other. If started early, even large estates can be transferred tax-free over two to three decades.
What are the tax benefits of usufruct?
The capitalised value of the usufruct is deducted from the market value of the property – the younger the donor, the higher the deduction. As a result, the gift often remains entirely within the tax-free allowance. At the same time, the usufruct secures the donor's right to live in and receive rental income from the property.
Does the gift protect against the compulsory portion (Pflichtteil)?
Only with sufficient lead time: according to case law, the ten-year tapering rule under § 2325 BGB regularly does not begin to run where a usufruct or right of residence has been reserved – meaning the gift is still counted in full even decades later. Compulsory portion planning therefore requires an individual strategy.
Can I reclaim the property if something goes wrong?
Only if the transfer agreement provides for rights of reclamation – for example, in the event of the child predeceasing the donor, selling the property, insolvency or divorce. In addition, there is a statutory claim in the event of the donor's impoverishment (§ 528 BGB), which the social welfare office can also assert in its own right. Without contractual clauses, reversal of the transfer is an absolute exception.
Does gifting to my child incur real estate transfer tax?
No – acquisitions by children, spouses and other direct-line relatives are exempt from real estate transfer tax (§ 3 GrEStG). Notary and land registry costs arise under GNotKG; gift tax only applies above the personal tax-free allowances.
Transfer agreement with a safety net.
Usufruct, rights of reclamation, tax consequences, compulsory portion strategy: we design and notarise your transfer – notarial office and specialist lawyer for inheritance law under one roof.