When property is transferred abroad with a reserved usufruct (Nießbrauchsvorbehalt), ownership passes while the donor keeps the use and the rental income; the capitalised value of the usufruct reduces the value of the gift, for German real estate also under limited tax liability, where the deduction is permissible in the individual case. The usufruct comes into existence only upon entry in the land register (Grundbuch), and the conveyance (Auflassung) of German land is declared before a German authority. For compulsory portion claims (Pflichtteil), a comprehensive reservation as a rule brings no advantage as to the time limit.
Anyone who transfers a property to children as part of a lifetime transfer of assets and reserves the benefit for themselves uses a reserved usufruct: ownership passes, while the right to use the property or to receive the rent stays with the donor. In a transfer abroad, for example because the recipients live abroad, the donor moves away, or the property is located abroad, further questions arise that the purely domestic case does not know. Who is liable to tax in Germany? What remains of the usufruct deduction if there is only limited tax liability? What form is required, and what applies to income, compulsory portion and reclaiming the gift? This article answers these questions from a German perspective. It makes no statements on foreign law; for that, an adviser in the state concerned must be consulted.
What the Reserved Usufruct Achieves
The reserved usufruct leaves the donor the use of the property although ownership passes. The usufruct is the right to use another person’s property and to draw its fruits (§ 1030 BGB). For real estate this means: the usufructuary may live in it or let it and keeps the income. They bear the ordinary maintenance costs (§ 1041 BGB) and the current public charges (§ 1047 BGB). The right is not transferable (§ 1059 BGB) and expires on the death of the holder (§ 1061 BGB).
The reserved usufruct (Vorbehaltsnießbrauch) stays with the donor. With a usufruct granted to a third party (Zuwendungsnießbrauch), the owner keeps ownership and grants someone else the right of use. An intermediate form is the fractional usufruct (Quotennießbrauch), in which only a part of the income stays with the holder. As to space, a usufruct over a building cannot as a rule be limited to individual rooms; for that there is the right of residence (Wohnungsrecht) under § 1093 BGB, which can be limited to individual rooms. For spouses, joint entitlement is usual; it should be regulated separately for the case of separation.
Creation requires agreement and entry in the land register. The gift contract concerning the land requires notarial recording (§ 311b (1) BGB), as does the conveyance (§ 925 BGB). The usufruct is entered in Section II. Charges ranking ahead, such as the land charge (Grundschuld) of a financing bank, can displace the right in the event of realisation; encumbered property can also make borrowing against it more difficult. This should be clarified before the transfer.
How the Usufruct Affects Gift Tax
The reserved usufruct reduces the taxable value of the gift. The gift of a property in Germany is assessed at the property value (Grundbesitzwert) (§ 12 (3) ErbStG, §§ 157, 176 ff. BewG). Foreign real estate, by contrast, is valued under § 31 BewG (§ 12 (7) ErbStG). The capitalised value of the reserved usufruct is deducted from this. The capitalised value is the annual value of the use multiplied by a multiplier derived from the mortality table (§ 14 (1) BewG). The Federal Ministry of Finance (Bundesfinanzministerium) publishes the multipliers for each valuation date; for valuation dates from 1 January 2026 a new table is available. The Federal Fiscal Court (Bundesfinanzhof) held the interest rate of 5.5 percent applied in this calculation to be constitutional in its judgment of 14 January 2026 (II R 35/23). Under § 16 BewG the annual value is limited to the land value divided by 18.6 at most.
An example with invented figures: Mr Weber gives his daughter a let house with a property value of 600,000 euros and an annual value of use of 24,000 euros. Mr Weber is 65 years old; for valuation dates from 1 January 2026 the multiplier is 11.444 (Federal Ministry of Finance letter of 21 October 2025). The capitalised value is then 274,656 euros, and the taxable value of the gift is 325,344 euros. The annual value is below the cap of 600,000 : 18.6 = roughly 32,258 euros. The allowance for a child is 400,000 euros (§ 16 (1) no. 2 ErbStG); in this example the acquisition would remain tax-free. The allowance renews after ten years have passed, because earlier acquisitions are aggregated only within that period (§ 14 ErbStG).
If the usufructuary dies earlier than the table assumes, a recalculation can be considered on application for lifelong usufructs if the usufruct ends within certain maximum periods (§ 14 (2) BewG). The statute graduates these periods by age group.
Foreign Connection: Who Is Liable to Tax in Germany
German tax liability depends on whether the donor or the recipient is a resident. Under § 2 (1) no. 1 ErbStG the gift is subject to unlimited tax liability if the donor or the acquirer is a resident at the time the tax arises. Residents are persons with a domicile or habitual abode in Germany and German nationals who have not stayed abroad permanently for more than five years without having a domicile in Germany. Anyone who no longer counts as such remains liable to tax insofar as German domestic assets are transferred: under § 2 (1) no. 3 ErbStG, assets within the meaning of § 121 BewG are in this case subject to limited tax liability. This includes German real estate.
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| Situation | Tax liability in Germany |
|---|---|
| Donor in Germany, recipients abroad | unlimited (donor is a resident) |
| Donor abroad for less than five years, German nationality | unlimited |
| Donor and recipients abroad, German property | limited, for the domestic assets |
| Foreign property, donor or recipients resident | unlimited, also for the foreign assets |
Under limited tax liability a special rule applies to the allowance: under § 16 (2) ErbStG it is reduced by a share if assets not subject to limited tax liability pass at the same time; acquisitions by the same person within ten years must be taken into account. The capitalised value of the usufruct is a burden connected with the domestic assets; how debts and burdens are to be deducted under limited tax liability is regulated by § 10 (6) ErbStG and should be checked in the individual case.
German tax is only part of the picture. If the recipient lives abroad, a gift or inheritance tax may arise there which may deduct the usufruct differently or not at all. Whether a treaty exists and how it works is explained in the article Inheritance Tax and Double Taxation Treaties. The credit rule of § 21 ErbStG concerns foreign tax on foreign assets; for assets situated in Germany it does not operate without more. You should consult a local adviser on this.
Income Tax and Emigration
After emigration, rental income from German land remains taxable in Germany. The usufructuary earns the rental income. If they move abroad, they are subject to limited income tax liability on income from letting German land (§ 49 (1) no. 6 EStG). The return must be filed in Germany. How the tenancy is to be allocated for tax purposes depends on the arrangement; with a usufruct this matters for the entitlement to depreciation and income-related expenses, and you should clarify the allocation in advance with a tax adviser.
Two side effects:
- Speculation period. If the property is sold later, the recipient steps into the donor’s acquisition for tax purposes. The ten-year period for private disposals (§ 23 EStG) is therefore not restarted.
- Exit taxation. § 6 AStG concerns shares in corporations, not real estate. If the property is contributed to a GmbH (limited liability company), this changes.
For foreign property, real estate transfer tax and ongoing taxation of the rent in the state where the property is situated are added; see Real Estate Transfer Tax on Foreign Property and Taxation of Rental Income from Foreign Property. Whether a usufruct can be created over foreign property, in what form and with what tax, is determined by the law of the state where the property is situated.
Civil-Law Risks
In civil law, the compulsory portion, reclaiming the gift, termination and the bearing of burdens must be considered.
Supplementary compulsory portion (Pflichtteilsergänzung). Gifts made within ten years before the date of death increase the compulsory portion (§ 2325 (3) BGB). According to the case law of the Federal Court of Justice (Bundesgerichtshof), with a comprehensive reserved usufruct the period as a rule does not begin to run as long as the donor in practice continues to use the object; the decisive judgment is that of 27 April 1994 (IV ZR 132/93, BGHZ 125, 395). With a right of residence, the extent matters; a right over parts only prevents the period from starting only exceptionally (judgment of 29 June 2016, IV ZR 474/15, BGHZ 211, 38). A life annuity secured by a land annuity charge (Reallast) does not prevent the period from starting, according to the judgment of 24 June 2026 (IV ZR 141/25). Anyone who wants to transfer the property in advance in order to reduce compulsory portion claims will therefore hardly achieve this with a comprehensive reserved usufruct. Where there is a foreign connection, the law applicable under the EU Succession Regulation determines whether and how a supplementary compulsory portion exists; see Compulsory Portion Law and Foreign Assets.
Reclaiming the gift due to impoverishment. The donor can reclaim the gift under § 528 BGB if they can no longer meet their appropriate maintenance; under § 529 (1) BGB the claim is excluded if ten years have passed since the performance at the time the need arises. Social assistance authorities can have such a claim transferred to themselves.
No unilateral termination. The owner cannot simply terminate the usufruct for breaches of duty. Anyone who wants protection must agree rights of reclaim in the contract, for example in case the recipient dies first, in case of divorce, insolvency, a sale or an encumbrance without consent. A priority notice (Vormerkung) can be entered in the land register for the right of reclaim (§ 883 BGB).
Burdens and disputes. Who bears major renovations? Who pays the building insurance? The statute assigns the ordinary maintenance and further duties to the usufructuary. You should regulate larger measures by contract.
If the right is to be released later, the more recent case law must be observed, under which a compensation payment can be taxable. See Money for Waiving the Usufruct.
Practical Handling with a Foreign Connection
With a foreign connection, form, notification, representation and land register must be planned separately.
- Form and place. The conveyance of German land must be declared before a competent German authority (§ 925 (1) BGB): before a notary in Germany or, for parties abroad, before a German consular officer (§ 12 no. 1 KonsG), who can also record the gift contract (§ 10 KonsG). A foreign notary is, according to the prevailing view, not sufficient for the conveyance. Recipients abroad can be represented by a power of attorney; for powers of attorney from abroad, certification and, where applicable, an apostille must be clarified. For foreign property, the law of the place where it is situated applies.
- Notification. Notaries report recorded gifts to the tax office (§ 34 ErbStG). The parties have their own duty to notify alongside this, unless § 30 ErbStG exempts them.
- Tax representation. If the donor or the recipients live abroad, it must be clarified who receives notices; an agent for service in Germany (Inlandsbevollmächtigter) can be sensible.
- Land register. The usufruct is to be entered in the land register, best at a position that is ready for ranking. Land charges must be checked before the transfer. After the death of the usufructuary, the right is deleted on proof of death; a simplified deletion can be provided for in the contract.
- Local adviser. Where the recipient or the property has a foreign connection, an adviser admitted there clarifies form, register and tax.
Open Legal Questions and Binding Ruling
In the individual case it can be open how the tax authorities value a usufruct, how they take it into account under limited tax liability, or how they treat a later release. In addition, in October 2026 the Federal Constitutional Court (Bundesverfassungsgericht) heard the case on inheritance tax, among other things on the valuation of real estate and on allowances (1 BvF 1/23). Until a decision is made, the current law continues to apply; changes are possible.
Where the legal position is unclear or changing, a binding ruling (verbindliche Auskunft, § 89 (2) AO) can be requested from the tax office before implementation. A fee may be charged for the ruling under § 89 (3) to (7) AO. With a foreign connection, a ruling in the other state may additionally be sensible.
Typical Mistakes
Frequently the tax in the other state, rights of reclaim, the ranking in the land register, the compulsory portion period and the income are handled wrongly.
Transfer without coordinating the taxes of both states. Anyone who calculates only German gift tax overlooks the tax at the recipient’s place of residence.
No rights of reclaim. Without a reversion clause, the property stays in a third party’s hands in case of the recipient’s divorce or insolvency.
Land charge ranking ahead of the usufruct. The right of use can lapse in the event of realisation.
Assuming the compulsory portion period is running. With a comprehensive reserved usufruct it as a rule does not begin.
Wrong allocation of income. After emigration, limited tax liability arises for the rental income.
Conclusion
The reserved usufruct lowers the value of the gift without taking the use away from the donor. With a foreign connection, the personal circumstances of both parties decide whether and how Germany taxes and how the deduction works; the tax in the other state is added. In civil law, rights of reclaim and a clean land register position protect. For the compulsory portion, a comprehensive reservation as a rule brings no advantage as to the time limit. Plan the transfer before emigrating and coordinate it with an adviser in the other state.
Frequently Asked Questions
Must the usufruct be notarially recorded?
Yes, for a German property the gift contract requires notarial form, and the usufruct comes into existence only upon entry in the land register.
Does the usufruct deduction remain under limited tax liability?
The capitalised value of the usufruct is connected with the domestic assets; § 10 (6) ErbStG regulates the deduction of burdens under limited tax liability and is to be checked in the individual case. The allowance may be reduced under § 16 (2) ErbStG.
What happens if the usufructuary moves abroad?
Rental income from a German property remains subject to limited tax liability in Germany. The duty to file a return continues.
Does the ten-year period for the compulsory portion begin despite a reserved usufruct?
With a comprehensive usufruct as a rule not, as long as the donor continues to use the object, according to the case law of the Federal Court of Justice. With rights of residence, the extent matters. This is to be checked in the individual case.
Can I release the usufruct later?
Yes, by waiver or cancellation, usually against payment. For tax purposes the compensation can be relevant; for the more recent case law see the linked article.
Attorney Dr. Johannes Fiala and the law firm, with a focus on international inheritance law, tax law and asset protection in Munich, advise property owners and their families on lifetime transfers with a foreign connection, from the design of the reserved usufruct through gift tax to coordination with advisers abroad. Dr. Fiala has published extensively on questions of emigration and asset protection. Contact the firm without obligation to discuss your individual situation in an initial consultation.
