Those who transfer their property to their children or partner during their lifetime can significantly reduce their tax burden – often more than with a later inheritance. The reason lies in the personal tax allowances, which renew every ten years, and in the usufruct reservation, which reduces the taxable value of the gift. We explain how gift tax will be calculated in 2026, which tax allowances apply, and which arrangements allow you to transfer your property in a tax-efficient manner.
Gift Instead of Inheritance: What Transferring Property During Your Lifetime Means
A gift is the transfer of assets free of charge during the donor’s lifetime. For real estate, this means transferring ownership to the next generation now instead of bequeathing it. The gift is taxed under the same law as an inheritance – the Inheritance and Gift Tax Act (ErbStG) – with the same tax allowances and tax rates.
The decisive difference lies in repeatability: While tax allowances are available only once in the event of inheritance, during your lifetime you can make another gift every ten years and use the same allowances multiple times. As with a sale, notarization is also mandatory when gifting real estate; the new owner is then entered in the land register.
The Tax Allowances in 2026 – and Why They Apply Again Every Ten Years
How much gift tax is payable depends first on the personal tax allowance. It is based on the degree of kinship and is regulated in Section 16 ErbStG:
- Spouses and registered civil partners: 500,000 euros
- Children and stepchildren (as well as children of children who have already died): 400,000 euros
- Grandchildren: 200,000 euros
- Parents and grandparents (only in the event of inheritance): 100,000 euros
- Other recipients in tax classes II and III (e.g. siblings, nieces, nephews, friends): 20,000 euros
Only the part of the value exceeding the tax allowance is taxed. The major leverage lies in Section 14 ErbStG: Multiple transfers from the same person are added together only if less than ten years lie between them. Once this period has elapsed, the tax allowance is fully reinstated.
An example: A married couple with two children can give each child every ten years EUR 400,000 per parent tax-free – a total of EUR 1.6 million per ten-year period. Those who start early can pass on even large fortunes completely tax-free over several cycles. Important: The period begins on the date of the respective gift, not at the start of the new year.
Tax class and tax rate: How much remains with the tax office
If the gift exceeds the tax-free allowance, the tax class becomes relevant. Section 15 of the Inheritance and Gift Tax Act divides recipients into three classes. Contrary to what many expect, parents and grandparents fall into the less favorable tax class II for a gift – tax class I with a EUR 100,000 allowance applies to them only in the event of inheritance.
The tax rates increase with the taxable acquisition (Section 19 of the Inheritance and Gift Tax Act):
- up to EUR 75,000: 7% (Class I), 15% (Class II), 30% (Class III)
- up to EUR 300,000: 11% / 20% / 30%
- up to EUR 600,000: 15% / 25% / 30%
- up to EUR 6,000,000: 19% / 30% / 30%
- above that: up to 30% / 43% / 50%
For children and spouses (tax class I), the tax burden therefore remains comparatively moderate – another reason to transfer real estate within the immediate family.
Usufruct: How retaining the right of use reduces the taxable value
Many owners want to give away the property but continue living in it or retaining the rental income. Usufruct makes exactly this possible: You transfer ownership but reserve the lifelong right of use. This reservation offers a dual advantage – you retain control, and the taxable value of the gift decreases.
The capital value of the usufruct is deducted from the property value. It is calculated as the annual value multiplied by a factor:
- The annual value is the annual value of use, generally the achievable net cold rent. It is capped: At most, the assessed value of the real estate divided by 18.6 may be used (Section 16 of the Valuation Act).
- The factor comes from the official table for Section 14 of the Valuation Act. It is based on statistical life expectancy (age and gender) and an interest rate of 5.5%. The Federal Ministry of Finance publishes the values annually, based on the mortality table of the Federal Statistical Office.
The younger the usufructuary, the higher the factor – and the greater the Value reduction. Since the inheritance tax reform, the usufruct reduces the assessment base in full; the former deferral arrangement has been abolished.
Calculation example: Transferring property to a child
A simplified example illustrates the effect. A father (aged 70) transfers a property with a real estate value of 500,000 euros to his son and reserves lifelong usufruct.
- Without usufruct: 500,000 euros − 400,000 euros tax-free allowance = 100,000 euros taxable. At 11% (Tax Class I), gift tax of around 11,000 euros would be due.
- With usufruct: With achievable annual net cold rent of 18,000 euros and a multiplier of around 9.6, the usufruct value is approximately 173,000 euros. This means only 500,000 − 173,000 = 327,000 euros is taxable—well below the tax-free allowance of 400,000 euros. No gift tax is due.
The cap does not apply here: 500,000 euros divided by 18.6 equals around 26,880 euros; the annual value of 18,000 euros is below this and is applied in full.
Further tax benefits when gifting real estate
In addition to the tax-free allowance and usufruct, there are further levers:
- Family home for spouses: If you gift the family home you occupy to your spouse or registered partner, the transfer is completely tax-free under § 13 ErbStG—without any size restriction or retention period. The tax-free allowance of 500,000 euros remains unaffected and is available for further gifts.
- Rented residential properties: Properties rented for residential purposes are valued at only 90% of their value (§ 13d ErbStG)—10% is tax-free from the outset.
- No real estate transfer tax: Gifts to spouses and relatives in the direct line (children, grandchildren) do not trigger real estate transfer tax.
Advantages and disadvantages of gifting during your lifetime
- Advantage—using tax-free allowances multiple times: The full tax-free allowance becomes available again every ten years.
- Advantage—avoiding increases in value: Future increases in value will no longer be included in your taxable assets.
- Advantage—retaining control: With usufruct or a right of residence, you can continue to use the property.
- Disadvantage—commitment: A gift is generally final; without agreed rights of revocation, you cannot readily get the property back.
- Disadvantage—supplementary compulsory share: Within ten years before the death, the Gifts can increase the compulsory portion claims of other relatives.
- Disadvantage – Costs: Notary and land registry fees are incurred, based on the property value.
FAQ on gift tax for real estate
Do I have to report a gift of real estate to the tax office?
Yes. Gifts must generally be reported to the tax office within three months. In the case of real estate transfers notarized by deed, the notary usually informs the tax office automatically.
How is the value of the property determined?
The tax office determines the property value in accordance with the Valuation Act, usually using the comparative value, income value, or real value method. If this value differs significantly from the actual market value, you can use an appraisal to prove a lower market value.
Can I continue living in the property despite the gift?
Yes. By reserving a usufruct or right of residence, you secure continued use—for life and protected by registration in the land register.
Is gifting also worthwhile for smaller properties?
Often yes: If the value is below the tax-free allowance, no gift tax is payable at all. However, the costs for the notary and land registry remain and should be factored in.
What happens if I make multiple gifts within ten years?
All gifts to the same person within ten years are added together. The tax-free allowance applies only once during this period; it becomes available again only after the ten years have elapsed.
Conclusion: Planning early pays off
Transferring real estate during your lifetime is one of the most effective ways to avoid gift tax and subsequent inheritance tax. The greatest advantages are the tax-free allowances that can be used again every ten years and the reserved usufruct, which significantly reduces the taxable value. Anyone who starts early can transfer even high-value real estate tax-free over several cycles. Because of the legal and family implications, however, you should coordinate the arrangement with a notary and tax advisor—this will help you avoid costly mistakes and keep the property in good hands until the very end.