Donation

Gift - The gift of real estate is the transfer of property ownership to another person during the lifetime of the previous owner, without consideration. It is often used as a form of anticipated succession and makes it possible to systematically pass on assets to the next generation, take full advantage of tax exemptions, and secure one’s own livelihood through the retention of usufruct or right of residence.

Procedure and Legal Requirements for the Gift of Real Estate

According to Section 518 of the German Civil Code (BGB), the gift of real estate requires notarization. The notary drafts the gift agreement, in which the donor and the donee agree to the transfer of ownership without consideration. The contract contains the exact property description, the transfer of title, and, if applicable, any agreed-upon consideration or reservations. The notary then arranges for the change in ownership to be entered in the land register.

For tax purposes, the gift of real estate is subject to the Inheritance and Gift Tax Act (ErbStG). Gift tax is calculated using the same tax rates and tax brackets as inheritance tax. The personal tax-free allowances are crucial in practice: children can receive 400,000 euros tax-free from each parent, and spouses can receive as much as 500,000 euros. The key advantage over inheritance is that these allowances can be used again every ten years. Through staggered gifts over several decades, substantial assets can thus be transferred tax-free.

When valuing the property for gift tax purposes, the property value as determined by the Valuation Act is decisive. Since the 2023 valuation reform, tax values have been closer to market value, which has tended to increase the tax burden on real estate gifts. Especially for valuable properties in sought-after locations, a lifetime gift may still be more advantageous than a later inheritance because multiple tax-free allowances can be utilized through the ten-year staggered schedule.

In practice, donors often agree to a reservation of usufruct or a lifetime right of residence. With usufruct, the donor retains the right to continue using the property themselves or to collect rental income. This significantly reduces the tax value of the gift, as the capitalized value of the usufruct is deducted from the property value. In addition, rights of recovery may be agreed upon, which take effect if the donee dies before the donor, sells the property without consent, or encounters financial difficulties.

Anticipated Succession and Supplement to the Statutory Share

A gift made as anticipated succession also has consequences under inheritance law. Gifts to heirs may, under certain circumstances, be offset against their share of the inheritance during the subsequent distribution of the estate. Relatives entitled to a statutory share may also assert a claim for a statutory share supplement if the gift was made less than ten years before the opening of the estate. For each year between the gift and the opening of the estate, the deductible portion decreases by one-tenth-after the full ten years have elapsed, the gift is no longer subject to the statutory share.

However, case law is stricter regarding gifts subject to a reservation of usufruct: In many cases, the ten-year period begins only upon the termination of the usufruct, not at the time of the gift. This aspect must be taken into account when structuring the gift.

Practical Tip for Real Estate Gifts in Nuremberg and Franconia

In the Nuremberg metropolitan region, real estate values in many city districts and surrounding municipalities have risen significantly in recent years. As a result, real estate gifts more frequently exceed personal tax exemptions, making early planning all the more important. For example, anyone wishing to gift an apartment building in Nuremberg-Gostenhof or a semi-detached house in Erlangen-Tennenlohe should have the tax valuation reviewed in advance by an expert.

We recommend that real estate gifts always be structured in close coordination between a notary, a tax advisor, and, if necessary, a specialist attorney for inheritance law. This allows for the optimal coordination of usufruct reservations, rights of recovery, and compensation arrangements for siblings. If needed, we provide support with a current market value assessment of the property as a basis for tax planning.

Frequently Asked Questions

Can a gift be revoked?

Under certain conditions, the donor may revoke the gift-for example, in the event of gross ingratitude on the part of the recipient under Section 530 of the German Civil Code (BGB) or if the donor themselves falls into financial hardship after making the gift (impoverishment of the donor, Section 528 BGB). In practice, it is advisable to include contractual rights of recovery in the gift agreement to avoid future disputes.

Is gift tax due immediately?

Gift tax becomes due at the time the gift is executed-for real estate, this is generally when ownership is transferred in the land registry. The tax office assesses the tax by notice upon becoming aware of the transaction. The obligation to report to the tax office applies to both the donor and the donee and must be fulfilled within three months of the gift.

Is a gift worthwhile for owner-occupied residential property?

Special tax benefits apply when a family home used as a primary residence is gifted between spouses: The family home can be transferred tax-free regardless of its value, provided the recipient subsequently uses the property for residential purposes. However, this rule applies only to spouses and registered domestic partners, not to transfers to children during the donor’s lifetime.

What ongoing costs arise after a real estate gift?

After the transfer of ownership, the recipient bears all ongoing costs of the property: property tax, building insurance, maintenance reserves, and-if rented out-management costs. If a right of usufruct has been reserved, rental income and the right of use remain with the donor, who then also bears the ongoing operating costs to the extent they are attributable to the use. Important for estate tax planning in the Nuremberg metropolitan region: The reservation of usufruct significantly reduces the tax value of the gift, as the capitalized usufruct value-calculated from the annual value and the donor’s statistical life expectancy-is deducted from the property value. For a 60-year-old donor with an usufruct value of 15,000 euros annually, this deduction alone can amount to 150,000 euros or more. Anyone planning a gift together with a reservation of usufruct should have the exact calculation performed by a tax advisor before the notarized gift deed is executed.

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