Usufruct (Nießbrauch)

Usufruct (Nießbrauch) is a right to use something – most commonly property: you transfer ownership but keep the right to use it.

How it works in Germany:

• Parents transfer their house to their children as a gift
• A usufruct right for the parents is entered in the land register
• The parents can continue to live in the house or rent it out and keep the rental income
• The children are the owners but can't dispose of the property (as long as the usufruct exists)

Tax advantage:

• The value of the usufruct right is DEDUCTED from the value of the gift
• Example: house worth €500,000. Value of the usufruct: €150,000. Taxable gift: only €350,000 – below the €400,000 allowance!
• Result: transferred completely tax-free!

When does it make sense? When parents want to transfer their house to their children tax-free but continue living in it. Very common in estate planning.