Property Valuation
Basic Report
Have an inherited property assessed with right of residence
Have you inherited a property encumbered with a right of residence? This situation often raises complex questions about accurate valuation and tax obligations. In this article, you will learn how to determine the value precisely and avoid costly mistakes.
With access to Google, BORIS, and Deep Research.
The value of a property is reduced by a right of residence; the calculation is done by multiplying the fictitious annual rent by a capital value factor from official tables.
The determined value of the right of residence reduces the assessment basis for inheritance tax, which can lead to significant tax savings.
Heirs have several strategic options: selling with a right of residence, paying out the entitled person, or waiting until the right expires.
Valuing an inherited property is already a challenge, but a registered right of residence adds another layer of complexity. Many heirs are uncertain how this factor affects the market value and the inheritance tax incurred. An incorrect assessment can lead to financial disadvantages of over 20%. This guide provides you with a clear step-by-step guide to have an inherited property with a right of residence valued. You will receive data-based methods and concrete examples, enabling you to make informed decisions.
A residential right registered in the land register grants a person the right to live in a property without being the owner. This right significantly reduces the market value of the property, as it cannot be freely used by a new owner. The depreciation directly depends on the age and gender of the beneficiary, as these factors determine their statistical life expectancy. Unlike usufruct, which also permits leasing, the residential right is restricted solely to personal use by the entitled person. The proper assessment of this burden is the first step towards a fair sales or tax strategy. This valuation method is clearly regulated in the Valuation Act (BewG) and is recognised by tax offices. A thorough understanding of these principles is crucial to comprehend the subsequent calculation steps.
The calculation of the residential right value follows a clear formula prescribed by the tax office. The value is determined by multiplying the hypothetical annual net rent by a legally defined capital value factor. The formula is: Annual rent × capital value factor = value of the residential right. The annual rent corresponds to the local comparable rent that could be achieved for the property and is multiplied by 12. The capital value factor is derived from official tables of the Federal Ministry of Finance, which are based on statistical life expectancy. For a 75-year-old man with a remaining life expectancy of 11.1 years, this factor is, for example, 8.271. A precise determination of these metrics is essential for an exact result. In the next step, this value is deducted from the unencumbered market value of the property.
Before you can deduct the value of the right of residence, you need to know the unencumbered market value of the property. There are three recognised methods for this, which are regulated in the Property Valuation Ordinance (ImmoWertV). For owner-occupied properties such as single-family and two-family houses, the value-based approach is usually applied. In this process, the land value and the construction costs of the building are added together.
The process is clearly structured:
Determine land value: This is derived from the standard land value per square meter, multiplied by the plot area. You can obtain the standard land value from the local expert committee.
Calculate building construction costs: Using standard construction costs (NHK 2010) per square meter of gross floor area, the construction costs are recalculated hypothetically.
Deduct age depreciation: An allowance for the age and wear of the building is deducted from the construction costs. The result is the building's real value.
Form the provisional real value: The sum of the land value and the building's real value gives the provisional real value.
This provisional value is then adjusted to the current market situation to obtain the final market value. A well-founded appraisal is the foundation for all further considerations here. With this market value, you can now carry out the final calculation.
Suppose you inherit a detached house with a market value of €400,000. Your 72-year-old aunt holds a lifelong right of residence registered in the land registry. The achievable monthly net rent for the house is €900, equivalent to an annual rent of €10,800. According to the life table of the Federal Ministry of Finance, a 72-year-old woman has a statistical remaining life expectancy of around 15 years, leading to a capitalised value factor of approximately 10.1. The calculation of the value of the right of residence is then as follows: €10,800 (annual rent) x 10.1 (capitalised value factor) = €109,080. This amount of €109,080 is then deducted from the market value of the property. The assessed market value of your inherited property is therefore €290,920 (€400,000 - €109,080). This reduced value is the relevant basis for calculation for the sale or the assessment of inheritance tax. The complexity of such cases demonstrates the importance of a data-driven analysis, as provided by the Auctoa Inheritance Manager.
The right of residence not only reduces the sale value but also the basis for calculating inheritance tax. The tax office recognizes the calculated value of the right of residence as a liability of the estate. In our example, the inheritance tax would not be calculated on €400,000 but on the reduced value of €290,920. This can lead to a tax saving of several thousand euros, depending on your tax class and the applicable allowances. It is crucial to present a comprehensible and correct valuation to the tax office. An inaccurate or missing statement will result in the tax office estimating the value based on its own assumptions, which are often less favorable for you. A professional valuation protects you from excessively high tax demands and provides legal certainty. Therefore, accurate documentation is an important part of your inheritance strategy.
As the heir of a property encumbered with a right of residence, you have several courses of action available. Each strategy has financial and personal implications that need to be carefully evaluated. A poor decision can reduce the return by up to 15%.
Here are the most common options:
Sale of the property: You can sell the property with the registered right of residence. The buyer takes over the right, which significantly reduces the sale price as calculated.
Compensation of the entitled person: You can offer the resident a settlement for them to relinquish their right, which is then removed from the land register. The amount of the settlement is based on the capital value of the right of residence.
Rental after moving out: If the entitled person moves out without giving up their right, the right of residence remains in effect. Renting out the property is then not legally straightforward.
Self-use after becoming available: You can wait until the right of residence expires due to the death of the entitled person, and then use the property yourself or sell it at full market value.
The choice of the right strategy greatly depends on your financial situation and long-term goals. Careful planning is key to success here. To find the best option, consulting might be worthwhile, such as our free ImmoGPT chat, which provides you with initial assessments.
When you have an inherited property with a right of residence appraised, a precise and methodical approach is crucial. The value of the right of residence, calculated from the annual rent and capital value factor, reduces the market value by an amount that often exceeds €100,000. This reduction is of central importance both for a potential sale and for the correct determination of inheritance tax. Use professional, data-driven tools like the Auctoa Inheritance Manager to avoid costly mistakes and to create a sound basis for decision-making. An accurate appraisal is your strongest tool for financial security in the case of inheritance.
Haufe discusses the valuation of properties considering residency rights.
Rose & Partner explains property valuation in the context of inheritance and gift tax.
Sparkasse offers a guide on inheriting property.
The Statistical Federal Office (Destatis) publishes press releases containing relevant data, for instance, on property prices.
The Statistical Federal Office (Destatis) provides tables on house and land prices.
The Council of Economic Experts publishes annual reports on overall economic development.
The Federal Ministry of Finance provides official information on inheritance and gift tax.
The Federal Court of Justice (BGH) publishes rulings that may be relevant to residency rights or real estate.
What is the difference between a right of residence and usufruct?
The right of residence (§ 1093 BGB) only allows personal habitation of the property. Usufruct is more extensive and additionally gives the beneficiary the right to rent out the property and keep the rental income.
Where can I find the capital value factor for calculating the right of residence?
The Federal Ministry of Finance (BMF) regularly publishes updated tables with capital value factors (multipliers). These are based on the mortality tables of the Federal Statistical Office and a statutory interest rate of 5.5%.
Can I force the resident to move out?
No, a right of residence registered in the land register is a strong right. You cannot force the beneficiary to move out or sell their right. The only way to terminate it is through a voluntary agreement, usually made in exchange for compensation.
What happens if the property is forcibly auctioned?
Whether the right of residence remains in the event of a forced auction depends on its ranking in the land register. If the right of residence is registered before the right of the enforcing creditor (e.g., the bank), it generally remains in place.
Is inheritance tax payable on an inherited right of residence?
Yes, acquiring a right of residence itself is also a taxable event. The value of the right is calculated using the same method and is subject to inheritance tax after deducting personal allowances.
How can Auctoa assist me in the evaluation?
Auctoa uses AI-driven analysis to accurately determine the market value of your property and calculate the value of the right of residence according to statutory requirements. Our inheritance manager helps you understand all factors and develop a sound strategy for your property inheritance.
