Lifetime right of residence - Taxes
July 22, 2015 | 35,00 EUR | answered by Tobias Heinrich
My wife and I want to give our daughter and son-in-law the initial capital for a two-family house (high five-figure sum). In return, we will have a lifelong, rent-free right of residence registered in the land register. We are aware that we will have to pay taxes on the difference between the capital brought in and the value of the residence. My question: Do our daughter and son-in-law have to pay any taxes in any way (e.g. the capital as a one-time rental income, etc.)?
Dear inquirer,
In the context of an initial consultation and your fee commitment, while adhering to the regulations of this forum, I would like to answer your question regarding German taxes.
If you proceed with the process as described, several issues or potential tax burdens may arise.
A detailed examination must be carried out, as depending on the actual implementation of the described actions, gift tax liabilities for the recipients may arise (which could be covered by the donor), and potential rental income may accrue to the recipients.
I strongly recommend that you consult a tax advisor for this matter. Ideally, you should also seek the advice of a specialist lawyer in family law.
Further considerations:
Who is actually giving to whom? Are both of you giving (double tax-free amounts) or is the capital to be gifted only by one parent?
Are you only giving to your daughter (potentially better in terms of family law, with a higher tax-free amount for the daughter) or are you giving to both?
Is it also possible for you to buy the house, register the right of residence (or a usufruct right, which should also be considered), and then sell the house to the recipients at a reduced price (the right of residence would then be registered in your own right and would have fewer tax consequences), resulting in a mixed gift, which can also be advantageous.
What is the motivation behind this? It is also conceivable to not gift the money to the recipients, but only to lend it to them and register the right of residence as security.
Should the right of residence be used at all? If so, to what extent?
As you can see, there are many questions that cannot be answered off the cuff. A professional consultation is needed, taking into account all of your (you, your wife, your daughter, your son-in-law, potential grandchildren, potential siblings of your daughter) life circumstances.
I hope this addresses your questions to the extent possible.
Best regards,
Tobias Heinrich
Tax Advisor
I am available for further consultation, either on my own or in conjunction with a specialist lawyer in family law.
