Inherited a property encumbered with residential rights? This situation often raises complex questions about correct valuation and tax obligations. In this article, you'll learn how to accurately determine the value and avoid costly mistakes.
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The topic briefly and concisely
The value of a property is reduced by a right of residence; the calculation is done by multiplying the notional annual rent with a capital value factor from official tables.
The determined value of the right of residence reduces the tax base for inheritance tax, which can lead to significant tax savings.
Heirs have several strategic options: selling with the right to live, paying out the entitled person, or waiting until the right expires.
The valuation of an inherited property is already a challenge, but a registered right of residence adds another layer of complexity. Many heirs are unsure how this factor affects the market value and the inheritance tax due. An incorrect assessment can lead to financial disadvantages of over 20%. This guide provides you with a clear step-by-step process to have an inherited property with a right of residence valued. You will receive data-driven methods and concrete examples to help you make informed decisions.
Fundamentals: How a right of residence affects property value
A residential right registered in the land register gives 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 entitled person, as these factors determine their statistical life expectancy. Unlike usufruct, which also allows renting, the residential right is limited solely to the personal use by the entitled person. The correct assessment of this encumbrance 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 precise understanding of these fundamentals is crucial to comprehend the further calculation steps.
The Formula: Accurately Calculating the Value of the Right of Residence
The calculation of the value of a residential right follows a clear formula, specified by the tax office. The value is determined by multiplying the fictitious annual net rent by a legally established 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, 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. Precise determination of these indices is essential for an accurate result. In the next step, this value is deducted from the unencumbered market value of the property.
Step by step: The market value appraisal 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, as regulated in the Property Valuation Ordinance (ImmoWertV). For owner-occupied properties such as single and two-family houses, the cost approach is usually applied. In this method, 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 metre, multiplied by the plot size. You can obtain the standard land value from the local expert committee.
Calculate building construction costs: Based on standard construction costs (NHK 2010) per square metre of gross floor space, the construction costs are recalculated fictitiously.
Deduct depreciation: A deduction for the age and wear and tear of the building is subtracted from the construction costs. The result is the building's value.
Form preliminary cost value: The sum of the land value and the building's value gives the preliminary cost value.
This preliminary value is then adjusted to the current market situation to obtain the final market value. A well-founded appraisal is the basis for all further considerations here. With this market value, you can now carry out the final calculation.
Practical Calculation Example
Let's assume you inherit a detached house with a market value of €400,000. Your 72-year-old aunt has a lifelong right of residence registered in the land register. The achievable monthly rent excluding utilities for the house is €900, which corresponds to an annual rent of €10,800. According to the Federal Ministry of Finance tax tables, a 72-year-old woman has a statistical life expectancy of around 15 years, leading to a capital value factor of approximately 10.1. The calculation of the value of the right of residence is as follows: €10,800 (annual rent) x 10.1 (capital value factor) = €109,080. This amount of €109,080 is then deducted from the market value of the property. The assessed, market-awarded value of your inherited property is thus €290,920 (€400,000 - €109,080). This reduced value is the relevant basis for calculation for the sale or the determination of inheritance tax. The complexity of such cases highlights the importance of data-driven analysis, as offered by the Auctoa Inheritance Manager.
Implications for Inheritance Tax
The right of residence not only reduces the sales value but also the basis for inheritance tax assessment. The tax office recognises 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 the €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 bracket and the applicable allowances. It is crucial to present the tax office with a comprehensible and accurate valuation. An inaccurate or missing statement will result in the tax office estimating the value based on its own assumptions, which are often less favourable for you. A professional valuation protects you from excessive tax demands and creates legal certainty. Therefore, precise documentation is an important part of your inheritance strategy.
Strategic Options for Heirs
As the heir of a property encumbered with a right of residence, you have several courses of action open to you. Each strategy has financial and personal consequences that need to be weighed carefully. A wrong decision can reduce the yield 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 assumes the right, which significantly reduces the sale price as calculated.
Compensation of the beneficiary: You can offer the right-holder a compensation for waiving their right, which is then deleted from the land register. The amount of compensation is based on the capital value of the right of residence.
Renting after moving out: If the right-holder moves out without waiving their right, the right of residence remains in place. Renting is not legally straightforward in this situation.
Own use after becoming vacant: You can wait until the right of residence expires due to the death of the right-holder, and then use the property yourself or sell it at full market value.
The choice of the right strategy largely depends on your financial situation and long-term goals. Careful planning is key to success here. To determine the best option, seeking advice can be beneficial, for example, through our free ImmoGPT chat, which provides initial assessments.
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If you need to appraise an inherited property with a right of residence, 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 essential both for a potential sale and for the accurate assessment of inheritance tax. Use professional, data-driven tools like the Auctoa Inheritance Manager to avoid costly mistakes and to establish a solid foundation for decision-making. An accurate valuation is your strongest tool for financial security in the event of inheritance.
Additional useful links
Haufe addresses the valuation of real estate considering occupancy rights.
Rose & Partner explains property valuation in the context of inheritance and gift tax.
Sparkasse offers a guide on the topic of bequeathing real estate.
The Federal Statistical Office (Destatis) publishes press releases containing relevant data, such as property prices.
The Federal Statistical Office (Destatis) provides tables on house and land prices.
The Council of Economic Experts releases annual reports on overall economic development.
The Federal Ministry of Finance offers official information on inheritance and gift tax.
The Federal Court of Justice (BGH) publishes rulings that may be relevant to occupancy rights or real estate.
FAQ
What is the difference between right of residence and usufruct?
The right of residence (§ 1093 BGB) only allows for personal habitation of the property. The usufruct is more extensive and additionally gives the entitled person 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 the capital value factors (multipliers). These are based on the mortality tables from the Federal Statistical Office and a statutory interest rate of 5.5%.
Can I force the tenant 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. Termination is only possible through a voluntary agreement, usually made in exchange for compensation.
What happens if the property is auctioned off?
Whether the right of residence remains in place during a foreclosure depends on its ranking in the land register. If the right of residence is recorded before the right of the enforcing creditor (e.g. the bank), it usually remains in place.
Is inheritance tax also payable for an inherited right of residence?
Yes, the acquisition of a right of residence itself is a taxable transaction. The value of the right is calculated using the same method and, after deduction of personal allowances, is subject to inheritance tax.
How can Auctoa help me with the assessment?
Auctoa uses AI-powered analyses to precisely determine the market value of your property and calculate the value of the right of residence according to legal regulations. Our inheritance manager helps you to understand all factors and develop an informed strategy for your real estate inheritance.
