You have inherited a house and are faced with the decision: sell it or pass it on to the next generation? A quick sale promises liquidity, but gifting it to your children can be far more tax-savvy and secure the family wealth in the long term.
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The topic briefly and concisely
Gifting an inherited house to children utilises high tax-free allowances (€400,000 per child/parent) and is often more advantageous than a sale, which can trigger speculative tax.
The usufruct right allows you to gift the property while still living in it or receiving rental income, significantly reducing the taxable value of the gift.
A professional property valuation is essential to accurately assess the value for the tax authorities, fully utilize allowances, and avoid back taxes.
The question of what should happen to an inherited property is an emotional and financial ordeal for many families. Often, selling seems the easiest way to avoid inheritance disputes and quickly gain capital. However, those who wish to gift an inherited house to children instead of selling can take advantage of significant tax benefits and lay the foundation for the financial future of the next generation. This article shows you how to minimise gift tax with strategic planning, the role of tax allowances and the usufruct right, and why an accurate property valuation must be the basis for your decision. This way, you make a data-driven choice that will last beyond the day.
Key insights at a glance
Utilise Tax Allowances: Every child is entitled to a gift tax allowance of €400,000 per parent every 10 years.
Avoid Capital Gains Tax : When selling an inherited property, capital gains tax may apply if the deceased acquired the house less than 10 years ago.
Use of Usufruct: A reserved usufruct right reduces the taxable value of the gift and secures you lifetime usage or rental income.
Valuation is Key: An accurate property valuation for gifting is crucial to optimally utilise allowances and avoid additional demands from the tax authorities.
Situation: Sell or Give Away After Inheritance?
Following an inheritance, you face a fundamental crossroads with financial implications of up to 40%. The decision between selling and gifting depends on your personal life plans and goals for your assets. A sale brings quick liquidity but can trigger high tax burdens and diminish family wealth.
Gifting, on the other hand, is a strategic act of anticipated succession. It allows you to transfer assets to the next generation in a targeted and tax-optimized manner, proactively avoiding inheritance disputes. The right strategy prevents conflicts that arise in over 30% of inheritance cases. Before making a decision, you should be well aware of the tax and legal conditions of both options. A detailed overview of the initial steps can be found in our guide Was bei einer geerbten Immobilie zu beachten ist. Analyzing the speculation period is an indispensable first step.
The Sale: When Capital Gains Tax Reduces Your Profit
When selling an inherited house, the tax office examines the so-called speculation period. This period lasts 10 years between the purchase and sale of the property. The important date here is not your inheritance date, but the original purchase date by the deceased. Therefore, if the deceased acquired the property 15 years ago, you can sell it immediately tax-free.
However, if the house was purchased within the last 10 years, the capital gains are subject to your personal income tax rate, which can be up to 45%. An exception applies if the property was used solely for personal residential purposes in the year of sale and the two preceding years. This regulation is often overlooked and can save thousands of euros in taxes. Ensure you are well-informed about the speculation period when selling an inherited house to avoid costly mistakes. An alternative to the speculation tax is the targeted use of gift allowances.
The Gift: How to Make the Most of Tax Allowances
The gift is often the most tax-efficient way to pass on an inherited house to children. The law grants children a personal gift tax allowance of €400,000 per parent. Therefore, a couple can transfer property values of up to €800,000 to their children without tax. This allowance can be fully utilised again every 10 years.
If the property value exceeds the allowance, gift tax is only levied on the amount exceeding the threshold. The tax rates for children (tax class I) range from 7% to 30%, which are considerably more moderate than in other tax classes. An example:
Value of the house: €500,000
Gift by one parent to a child.
Allowance: €400,000
Amount to be taxed: €100,000
Gift tax (7%): €7,000
Thanks to the 10-year period, even wealth worth millions can be transferred tax-free if planning is started early. A correct valuation is crucial, as our article on gift tax on real estate explains in detail. But what if the value exceeds the allowance and the 10-year period is not an option?
Usufruct right: Gifting with the handbrake on
The usufruct right is an effective tool if you wish to gift an inherited house to children instead of selling it, but do not want to relinquish full control. You transfer ownership but reserve a lifelong right of residence or rental income. This usufruct reduces the value of the gift and thus the basis for tax assessment.
The value of the usufruct is capitalised and depends on the age of the donor and the annual rental value of the property. The younger you are, the higher the value of the usufruct and the lower the taxable value of the gift. For example, a property with a market value of €600,000 can quickly fall below the allowance of €400,000 due to a usufruct reservation. This can reduce the gift tax to zero. Learn more about how you can avoid inheritance tax through usufruct. However, an accurate valuation is essential for this.
The Property Value: Why an Accurate Assessment is Crucial
An accurate determination of the property value is the foundation for any tax planning. An undervaluation can lead to audits and significant tax back payments by the tax office. An overvaluation means you do not fully utilize the allowances. The tax office often uses standardized procedures that do not take the specifics of your property into account.
An independent market value appraisal by a certified expert creates legal certainty in this matter. It documents the market value comprehensively and is recognized by the tax office. A data-driven valuation protects you from unpleasant surprises and is an investment that quickly pays off. Ask yourself: What is the value of my inherited house? A professional analysis is the first step. With Auctoa's ImmoGPT, you receive an initial, AI-supported evaluation in just 2 minutes. However, for a binding decision-making basis, a detailed appraisal is essential.
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Once the decision for the gift has been made, a clearly structured process follows. Careful implementation is crucial to avoid legal pitfalls. Here's how to proceed:
Strategy and Consultation: Set the conditions together with the recipients. Should residential or usufruct rights be reserved? An initial consultation provides clarity about the objectives.
Property Valuation: Have the market value determined by an expert. This appraisal forms the basis for the gift contract and the tax declaration.
Notarial Gift Contract: A gift of real estate is only valid with notarial certification. The notary prepares the contract, which sets out all rights and obligations.
Land Register Entry: After the signing, the notary arranges for the transfer of ownership in the land register. Only then is the gift legally completed.
Notification to the Tax Office: As a rule, the notary undertakes the obligation to notify. The recipients must submit a gift tax declaration within three months if requested by the tax office.
This process ensures that the transfer runs smoothly and all tax advantages are utilised. A clear plan is also crucial if you sell a house to your own son instead of giving it away.
Conclusion: Long-term planning beats short-term gain
Are there any costs if I gift a house to my child?
Yes, there are costs involved even with a gift. You need to account for notary fees to notarise the gift agreement and costs for changing the land register entry. These fees typically depend on the value of the property and usually amount to about 1.5% to 2% of the market value.
Can a gift be revoked?
A gift can only be revoked under certain legally regulated circumstances, such as gross ingratitude on the part of the recipient or if the donor becomes impoverished after the gift and can no longer support themselves. Contractually, individual reversion clauses can also be agreed upon.
Do I have to report a gift to the tax office?
Yes, every gift must be reported to the relevant tax office within three months. In the case of a notarially recorded property gift, the notary usually takes on this notification obligation. The tax office will then assess whether gift tax is due.
What happens to a loan on the house when it is gifted?
If a property with an existing mortgage is gifted, it must be discussed with the bank whether the recipient will take over the loan. The bank must agree to this assumption of debt. Alternatively, the donor can continue to pay off the loan or repay it in full before the gift.
What is the difference between a right of residence and usufruct?
A right of residence only allows you to live in the property. Usufruct goes further: it also gives you the right to rent out the property and keep the rental income. Usufruct is therefore more valuable and reduces the gift tax more significantly.
Can I gift only part of the house?
Yes, a partial gift is possible. For instance, you can gift a co-ownership share of the house to your child. This is a common strategy to keep the value of the gift within the tax-free allowance of €400,000 and to utilise the 10-year deadline for further gifts.
Additional useful links
The Federal Ministry of Finance offers comprehensive information on inheritance and gift tax.
The Federal Statistical Office (Destatis) provides a PDF document with detailed statistics and information on inheritance and gift tax.
The NRW Tax Office provides information about tax liability in cases of inheritances and gifts.
Learn from the Federal Ministry of Finance about the tax changes planned for the year 2025.
The Mecklenburg-Vorpommern Tax Portal offers specific information on tax law in the area of gifting and inheritance.
The NWB database offers professional information on relevant topics in the context of inheritance and gifting.
The Sparkasse provides a guide on the topic of gifting and its significance in family planning.
FAQ
Are there any costs incurred when I gift a house to my child?
Yes, costs are incurred even for a gift. You should expect notary fees for certifying the gift contract and costs for changing the land register entry. These fees are based on the value of the property and are usually around 1.5% to 2% of the market value.
Can a gift be reversed?
A gift can only be revoked under certain circumstances regulated by law, such as in cases of gross ingratitude by the recipient or if the donor becomes impoverished after the donation and can no longer support themselves. Contractually, individual reversion clauses can also be agreed upon.
Do I need to report a gift to the tax authorities?
Yes, every gift must be reported to the relevant tax office within three months. In the case of a notarially certified property gift, the notary usually takes on this obligation to report. The tax office then checks whether gift tax is payable.
What happens to a mortgage on a house in the event of a gift?
If a property with an existing mortgage is gifted, it must be clarified with the bank whether the recipient will take over the loan. The bank must approve this assumption of debt. Alternatively, the giver can continue to repay the loan or completely settle it before the gift.
What is the difference between right of residence and usufruct?
A right of residence only allows you to live in the property. The usufruct goes further: it also gives you the right to rent out the property and keep the rental income for yourself. Therefore, the usufruct has a higher value and reduces the gift tax more significantly.
Can I give away just part of the house?
Yes, a partial gift is possible. For example, you can give your child a share of the ownership of the house. This is a common strategy to keep the value of the gift below the tax exemption limit of €400,000 and to take advantage of the 10-year period for further gifts.
