The donation of real estate against the granting of usufruct in favour of the donor is common practice in families. Currently, usufruct is very popular due to the high value of real estate, as it can significantly reduce the value of the gift as a special form of right of use.
An example
If the 60-year-old mother transfers a rented property with a taxable market value of 800,000 euros and annual rental income of 29,000 euros to her son, a gift tax of 60,000 euros arises, taking into account an allowance of 400,000 euros. However, if the mother is granted a lifelong usufructuary right, the gift tax does not apply, as the usufructuary value exceeds the 400,000 euros and is thus deductible in the gift. As a result, the mother as usufructuary is entitled to the rental income for life. In addition, she can continue to deduct the previous depreciation of the building.
But what is the legal situation if the mother dies or finds out after a few years that she does not need the rental income from the usufruct and therefore wants to renounce it?
The usufruct in the event of death
In the event of death, the law provides for certain minimum terms for the usufruct depending on the age of the donor. The usufruct lapses if the mother dies later than seven years after the transfer of the property, in our example at the age of over 67. Subsequent taxation of the gift is then also not due.
If the mother dies earlier, for example at the age of 63, the usufruct is credited proportionately for three years. Consequently, gift tax of approx. 43,000 euros must be paid for the remaining four years.
Renunciation during lifetime
If the usufruct is renounced during the lifetime, the regulation of a further, downstream gift always applies.
If the mother renounces the usufruct after a little more than ten years because the son needs the rental income for his livelihood, the renunciation again constitutes a gift from the mother to the son. The usufruct value is then approx. 324,000 euros. However, since this second gift occurs after more than ten years of the real estate gift, the son is entitled to a new allowance of 400,000 euros. Accordingly, no gift tax is due, as the value of the gift is lower than the tax-free amount. Moreover, the waiver has no effect on the original gift of the property to the son.
Jürgen Lindauer
Director, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
