Usufructuary

The usufructuary is the person who holds the right of usufruct (§ 1030 BGB) over a property-in real estate law, typically a parcel of land or a building. The usufructuary is entitled to use the property and to receive the income derived from it (e.g., rental income) without being the owner. The usufruct right is entered in the land register and is strictly personal-it can neither be inherited nor transferred.

Rights and Obligations of the Usufructuary

The usufructuary has extensive rights, but also specific obligations:

Rights:

• Comprehensive use of the property (for personal use or rental)
• Collection of all income (rental income, leasehold rent)
• No requirement for the owner’s approval for ongoing use

Obligations:

• Maintenance of the property in proper condition (ordinary maintenance pursuant to § 1041 BGB)
• Bearing of ongoing management costs (operating costs, insurance, property tax)
• No significant alterations or restrictions on the property without the owner’s consent
• Extraordinary maintenance and repair work is generally the responsibility of the owner (Section 1045 of the German Civil Code (BGB))

The distinction between ordinary and extraordinary maintenance is a frequent source of conflict between the usufructuary and the owner in practice. A carefully drafted provision in the transfer agreement that provides specific examples and sets cost limits prevents future disputes.

Usufruct as a Planning Tool in Inheritance and Gift Planning

Usufruct is a frequently used instrument in anticipated succession. Parents transfer real estate to their children as a gift but reserve the right to lifelong usufruct. This enables:

• Tax relief: Usufruct significantly reduces the taxable value of the gift (capitalization of the usufruct value based on official mortality tables), which lowers the gift tax burden.
• Continued right of residence and income for the parents
• Early transfer of ownership to the next generation
• Start of the 10-year tax-free allowance (400,000 euros per parent and child)

When valuing the usufruct right for gift tax purposes, the annual value of the usufruct (e.g., annual rental value) is multiplied by a multiplier that depends on the age of the usufructuary. The younger the usufructuary, the higher the usufruct value and the lower the tax value of the gift. For a 55-year-old individual, the usufruct deduction can exceed 50% of the property’s value.

Tax Treatment of the Usufructuary’s Rental Income

If the usufructuary rents out the property and generates rental income, they must report this as income from renting and leasing. In return, they can deduct ongoing expenses as income-related expenses-property tax, operating costs, repairs. Depreciation (AfA), however, is available to the beneficial owner, who, in the case of a reserved usufruct, is typically the owner (i.e., the child receiving the gift). This requires careful coordination with a tax advisor.

Effects of Usufruct on the Sale of Real Estate

A registered usufruct right significantly encumbers a property: While sales are possible, the usufruct is transferred to the buyer if it is registered in the land registry. Thus, the buyer effectively assumes the obligation to tolerate the usufructuary in the property until their death or until the agreed termination of the usufruct. This significantly reduces the achievable purchase price-depending on the usufructuary’s age and the rental value, the deduction can amount to 30-60% of the unencumbered market value.

Practical Tip for Property Owners in Nuremberg and Franconia

We regularly handle cases in Nuremberg and the surrounding region where parents wish to transfer their home to their children while retaining the usufruct. Careful notarial and tax advice is essential in such cases: An improperly structured usufruct can result in tax disadvantages or lead to significant problems in the event of a dispute between the usufructuary and the owner. Contact us-we can connect you with experienced notaries and tax advisors in the Nuremberg metropolitan area.

Frequently Asked Questions

Can a right of usufruct be inherited?

No. The usufruct right automatically expires upon the death of the usufructuary (Section 1061 of the German Civil Code). It can neither be inherited nor transferred to third parties. If the usufructuary has died, the right must be removed from the land register upon request-submitting a death certificate to the land registry office is generally sufficient for this.

What is the difference between usufruct and the right of residence?

Both rights are entered in the land register and allow for the use of a property. The right of usufruct is more comprehensive: it also permits renting out the property and collecting all income. The limited personal right of residence (Section 1093 of the German Civil Code) entitles the holder only to personal use-not to renting to third parties. For gift tax optimization, the capitalized value of the right is deductible in both cases.

How is a usufruct deleted from the land registry?

If the usufruct expires due to the death of the beneficiary, an extract from the death register is sufficient for deletion. If a time-limited or conditionally terminable usufruct has been agreed upon, the beneficiary’s consent to deletion is required. Deletion is always carried out at the competent land registry office-in Nuremberg, at the Nuremberg Local Court.

What specific tax advantages does a usufruct reservation offer in practice?

The tax advantage of a usufruct reservation is that the value of the usufruct is deducted from the property’s taxable transfer value. Specifically: For a property with a tax value of 600,000 euros and an annual rental value of 18,000 euros, a 60-year usufructuary results in a capital value of the usufruct of approximately 230,000 euros (annual value × official multiplier). The tax transfer value thus drops to approximately €370,000-which, given the €400,000 exemption per parent and child within the 10-year cycle, can result in a completely tax-free transfer. In Nuremberg, where real estate values in central locations range from 400,000 to over one million euros, significant tax burdens can be avoided through a strategically structured usufruct arrangement. We recommend coordinating this arrangement early on-ideally years before a planned generational transition-with a specialized tax advisor and notary in the metropolitan region.

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