Tax tip: Expert opinion in the case of a gift of real estate with usufruct?

Gifts of real estate with the granting of a usufructuary right for the donors are a popular form of anticipated succession. 

This is all the more true at present as the taxable real estate values have increased and the tax allowances have not been adjusted for more than ten years. The usufruct value reduces the tax assessment basis of the gift. There are two methods of determining the value of the usufruct. On the one hand, according to the tax valuation law, in which the usufruct is calculated separately and deducted from the value of the property. On the other hand, by means of a market value appraisal in accordance with section 198 of the Valuation Act, in which the usufruct is directly taken into account in the valuation of the property, reducing its value.

In quite a few cases, the determination of the market value by means of an expert opinion leads to a considerably higher usufruct value than with the help of the valuation law - and thus to a lower gift tax. This is essentially due to the fact that in the case of a market value appraisal, one is not bound to the tax interest rate of 5.5 percent and the information of the mortality table can be adjusted with regard to the average life expectancy.

Another advantage over the Valuation Act is that the usufruct does not have to have a minimum term. If, in the valuation according to the Valuation Act, the usufruct is adjusted to the actual life span in the case of an early death of the donor, this is not done in the market value appraisal. If, for example, a 60-year-old transfers his property with an annual yield of 24,000 euros under the granting of usufruct and dies after one year, the value of the usufruct at the time of the gift is approximately 300,000 euros and is reduced by the premature death to only 24,000 euros. This means that 276,000 euros must be taxed subsequently. In the context of a market value appraisal, no adjustment of the usufruct value is made due to premature death, as there is no legal basis for this. 

This opinion was recently confirmed by the tax authorities in a ruling from Rhineland-Palatinate dated 15 December 2022. In this respect, when transferring real estate under the granting of usufructuary rights, it should always be checked whether a market value appraisal pursuant to section 198 of the Valuation Act would be advantageous.