What is a usufruct worth, and what does it achieve when handing property to your children?
“We are signing the house over to the children and I am keeping the usufruct.” I hear that sentence in Dresden almost every month, usually at a kitchen table and usually after the decision has already been made. What is missing at that point is the figure. Hardly anyone knows what the retained right of use is worth on paper. Yet that is exactly what decides whether the gift stays free of tax.
What a usufruct is, how it differs from a right of residence and why the rank in the land register decides everything, is covered in the overview of property annuities, life annuities and partial sales. This page is about the arithmetic behind it, and about what that arithmetic does inside a family.
How the tax office values a usufruct
The valuation runs in three steps, and none of them is negotiable.
Annual value of the use
What the use is worth in a year. For an owner-occupied house that is the local net cold rent, not the rent including service charges and not the rent you would like to get.
The cap under section 16 BewG
The annual value may at most reach the figure you get when the property's tax value is divided by 18.6. That works out at around 5.4 per cent a year.
The multiplier under section 14 BewG
The annual value is multiplied by a factor based on age and sex. The table is issued by the Federal Ministry of Finance and rests on the life table of the Federal Statistical Office.
The cap sounds like a hard brake, but it rarely bites on residential houses. It only takes effect once the annual rent exceeds roughly 5.4 per cent of the tax value. On Dresden detached and terraced houses it sits below that in my experience, while a low-valued rented flat can sit above it. Checking takes a minute. Anyone who misses the limit claims too large a deduction and has it struck out later.
The multiplier is where most people misjudge the figure. It rests on the life table and is calculated with an interest rate of 5.5 per cent that is written into the statute. For valuation dates from 1 January 2026 the table based on the 2022/2024 life table applies. A woman aged 72 appears there with 10.447, a man of the same age with 9.293. Applied to the annual value in the worked example below, that is a difference of €20,772 in the deduction. Not a mistake, but the difference in life expectancy.
Worked example: a terraced house in Dresden-Striesen
| Step | Value |
|---|---|
| Tax value of the terraced house (assumed) | €600,000 |
| Local net cold rent, taken at €1,500 a month | €18,000 a year |
| Cap under section 16 BewG (600,000 divided by 18.6) | €32,258, not reached |
| Multiplier, woman, aged 72, valuation date from 01/01/2026 | 10.447 |
| Capital value of the usufruct (18,000 × 10.447) | €188,046 |
Value and rent are set here so that the calculation can be followed. The binding property value is determined by the tax office under sections 176 ff. BewG; it can differ from what I as an agent would expect on the market. For tax purposes the determined value counts.
What the deduction achieves when gifting to your children
The capital value of the retained usufruct reduces the child's enrichment (section 10(1) ErbStG). What arrives with the child is the house less the burden resting on it. That is the whole lever, and it is larger than most people expect.
The rule many people still have in mind no longer applies
Section 25 ErbStG was repealed by the inheritance tax reform act of 24 December 2008. In the statute only one word now stands behind the section number: repealed. Under section 37(2) ErbStG the old provision applies solely to gifts executed before 1 January 2009. Guides that treat a usufruct under that provision describe a legal position that no longer governs today's handovers.
The tax-free allowance is then applied to the resulting value. It is €400,000 per child, €200,000 for grandchildren and €500,000 for a spouse (section 16(1) ErbStG). The way it is counted matters: the allowance applies between one person and one person. If the house belongs to both parents and there are two children, four allowances sit side by side.
Nor is the allowance a one-off gift for life. Several transfers from the same person within ten years are added together (section 14(1) ErbStG). Anyone who already transferred a flat in 2020 cannot act in 2026 as if it had never happened. Once the ten years have passed, the full amount is available again.
The same gift, with and without a usufruct
| Step | With usufruct | Without usufruct |
|---|---|---|
| Tax value of the property | €600,000 | €600,000 |
| less capital value of the usufruct | −€188,046 | €0 |
| Value of the gift | €411,954 | €600,000 |
| less allowance for one child (section 16 ErbStG) | −€400,000 | −€400,000 |
| Taxable acquisition, rounded down (section 10(1) ErbStG) | €11,900 | €200,000 |
| Gift tax, tax class I (section 19(1) ErbStG) | €833 (7%) | €22,000 (11%) |
€833 instead of €22,000, purely because a right sits in the land register that the mother wanted to keep anyway. The deduction works twice over. It lowers the taxable base, and it also pushes the acquisition below the €75,000 threshold above which section 19(1) ErbStG moves from 7 to 11 per cent.
One restriction is new and still little known. Under section 10(6b) ErbStG, anyone who proves a lower market value of the property by expert report and has already reflected the burden in that report may not deduct it a second time. The provision applies to acquisitions from 1 January 2025 (section 37(21) ErbStG). So if you work with an expert report, make sure the usufruct appears in the calculation only once.
Two ten-year periods that are easily confused
The tax period under section 14 ErbStG
It runs from the day of the gift. After ten years the allowance is fully available again. This period runs even if you have retained the usufruct.
The compulsory-share period under section 2325(3) BGB
It reduces the claim to top up a compulsory share by one tenth per year. In 1994 the Federal Court of Justice held that performance within the meaning of that provision only occurs once the donor not only finally gives up their position as owner but also gives up continuing to use the asset (BGHZ 125, 395). Where the donor retains a usufruct over the whole property, the period therefore as a rule does not begin.
This is where handover contracts come apart, and it happens years after the notary appointment. Anyone who deliberately passes over one child and transfers the house to the other assumes the matter is settled after ten years. For tax purposes it is. Under succession law it is not, as long as the usufruct covers the whole property. Whether that is how it plays out in a given case belongs before the signature and in the hands of a notary or a specialist lawyer.
When the beneficiary dies early
The tax office's calculation assumes a statistical life expectancy. Where reality departs sharply from it, the assessment is corrected afterwards. Section 14(2) BewG sets fixed windows by age: for a 72-year-old beneficiary it is five years, between 80 and 85 three years, above 90 only one.
And here lies the imbalance that hardly ever comes up in an advice session. Where the correction works in the taxpayer's favour, the taxpayer has to apply for it. Where a deducted burden falls away, the tax office needs no application; the final sentence of the provision says so expressly. The additional demand arrives by itself, the refund does not.
The same gift if the mother dies after two years
| Step | Originally | After the correction |
|---|---|---|
| Capital value of the usufruct | €188,046 | €34,146 |
| Value of the gift | €411,954 | €565,854 |
| Taxable acquisition, rounded down | €11,900 | €165,800 |
| Gift tax (section 19(1) ErbStG) | €833 (7%) | €18,238 (11%) |
The corrected capital value is the annual value of €18,000 times the multiplier for two years from annex 9a to the Valuation Act (1.897). The additional payment comes to €17,405.
That additional payment hits the child, not the mother who has died. It arrives at a moment when nobody in the family is expecting post from the tax office. I raise it before every handover, because it is the one part of the calculation you can set money aside for in advance.
Selling to a third party while retaining the usufruct
A usufruct does not have to stay inside the family. You can also sell to a stranger and retain the right of use. The pool of buyers for that is small, and it is a completely different pool from an ordinary sale.
Whoever buys on those terms receives no rent for years and cannot move in. That rules out families looking for a home of their own, and it makes financing harder, because an encumbered property is worth less as security. What remains are long-horizon investors, specialist providers and occasionally the neighbour who wants the plot next door anyway. For properties like that I get noticeably fewer enquiries in Dresden than for the same property without the encumbrance. That is my experience from my own transactions, not a statistic.
The arithmetic starting point is the same capital value as above, €188,046 on €600,000 in the example. A buyer, though, does not calculate with the 5.5 per cent from section 14 BewG but with their own required return, and that is usually higher. The higher it is, the further the benefit moves into the future for them and the larger the discount becomes. On top comes a margin for the risk that the beneficiary lives longer than the table says. The tax value is therefore a floor for the negotiation, not a price recommendation.
Four points that have to be in the contract
The rank in the land register
The usufruct belongs ahead of any mortgage the buyer registers for their financing. Add that any further encumbrance requires your consent.
The price for removing the right
At some point the owner will want to sell, or you will want to give the right up. The usufruct is then deleted only against payment. If the calculation is not in the contract, it is negotiated at the moment when one side is under pressure.
Who pays which repair
The statute splits the costs between beneficiary and owner, but only in broad strokes. The contract should assign roof, heating and windows expressly and name a figure above which the owner takes over.
The right to let, in writing
A usufruct permits letting. Write in nonetheless that you may do so and who is entitled to the rent. It saves the discussion at exactly the moment when it suits you least.
How rank in the land register works in practice, and what happens to it in a forced sale, is set out on the page on property annuities in Dresden.
What a usufruct does when care is needed
This is why in Dresden I usually point people towards a usufruct rather than a right of residence. A right of residence effectively ends on the day you move into a care home: you may use the property, you may not let it. A usufruct carries on, because the rent takes the place of living there.
The rent does not pay for care. It pays the resident's own contribution. That contribution is precisely the item that makes relatives talk about a sale years later. Anyone who has kept the usufruct does not have to sell the house at that point, but lets it and keeps the income.
The third ten-year period
If the donor's income no longer covers reasonable maintenance, they can reclaim the gift from the recipient (section 528 BGB). That is only ruled out once ten years have passed since performance by the time the need arises (section 529(1) BGB). Three ten-year periods, three starting points. Which is why this belongs with a notary.
The mistakes I keep seeing
Maintenance costs are left unregulated
The contract carries a reference to the statute and nothing else. The dispute then starts with the first large item. I have seen more than one case in which mother and son fell out over a heating system, because nobody had written down beforehand who pays for it.
No price for the case where the right has to go
The children want to sell and the usufruct is in the way. Without an agreed calculation it is one word against another, and family peace hangs on a figure nobody can substantiate.
The rank slips behind the bank
The recipient later finances a conversion. The mortgage is registered, and if your usufruct sits behind it, the right will not survive a forced sale. A clause making every further encumbrance subject to your consent costs nothing and prevents exactly that.
The annual value is guessed rather than derived
Set too low it gives away deduction, set too high it invites queries. The benchmark is the local net cold rent, and that can be evidenced for any Dresden location.
The multiplier comes from an old leaflet
The table changes with every new life table. Anyone calculating with a figure from a guide written the year before last arrives at a different result from the tax office. What counts is the table for the valuation date.
The two figures without which none of these calculations works
Everything here rests on two figures: the value of your property and the local net cold rent. I will estimate both for your Dresden location. Free of charge, without obligation, even if you do nothing afterwards. What you then do with those figures at your tax adviser and your notary is your call alone.
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