Focus on usufruct: tax consequences of renunciation

No property gift without a rivet, it is said time and again. The riveting process is one of the classics of property succession and offers considerable tax advantages.

 If, for example, a rental property is transferred to the children, the donor can reserve the right to continue receiving the rental income for the rest of their life. This so-called reserved right reduces the gift tax because its value is deducted from the value of the property.

But what happens if the beneficiary dies or waives their right, whether free of charge or in return for compensation? In its ruling of 10 October 2025 (case no. IX R 4/24), the Federal Fiscal Court (BFH) abandoned its previous line on waivers for consideration - to the detriment of taxpayers. In the case in dispute, the plaintiff had a lifelong usufruct of a rented property and generated income from letting and leasing. After the sale of the property, she waived her right in return for payment. In accordance with BFH case law from 1992, the plaintiff saw this as a non-taxable reallocation of assets.

The BFH has now ruled against this. The waiver of a usufructuary right to a rented property in return for payment is to be treated as taxable compensation for lost income in future and leads to subsequent income from letting and leasing. Whether the waiver is voluntary or under pressure is irrelevant. Anyone who allows their right to be bought out receives an economic payment for rents that will be cancelled in the future. The court thus contradicts both its previous case law and the BMF circular dated 30 September 2013, which still classified redemptions as non-taxable reallocation of assets. Anyone who gives up a property for a fee must therefore expect to pay income tax on the compensation in the future.

Withdrawal for no consideration is different, for example if the owner no longer needs the rent. This constitutes a gift to the owner. The basis of assessment is the capital value of the rent, calculated according to the current rent and the age of the beneficiary. If the father transfers a rented property to his daughter at the age of 60 subject to reservation of usufruct and renounces it free of charge at the age of 75, additional gift tax may be incurred, which the daughter would have to pay. If the annual net rent is around 24,000 euros, this results in a gift of around 200,000 euros. However, if the father has not gifted anything in the last ten years, the tax-free amount of 400,000 euros covers the entire amount and no gift tax is incurred.

If the deceased dies, no further tax is incurred. However, according to Section 14 of the Valuation Act, the value of the usufruct is added back on a pro rata basis if the beneficiary only lived for a short time after the transfer. In the example: If the father lives until at least 67 after the transfer, the original benefit is retained; if he dies earlier, subsequent taxation may occur.

The conclusion remains: Waiver against payment leads to a gift, waiver against payment results in income tax according to new BFH case law and the cancellation due to death remains tax-neutral if the deadlines are met. The use of a pension remains a valuable structuring instrument, but the waiver against payment has become more expensive.