How Does Usufruct Reduce Gift Tax?
If the right of usufruct is registered when a property is donated, this will be taken into account when calculating taxes. The value of the usufruct is deducted from the value of the property. If the result of this calculation is higher than the allowance, you will have to pay gift tax on the difference. In the case of a gift, however, the right of usufruct can also be used to avoid gift tax if the remaining amount is below the exemption limit.
The capital value of the usufruct depends on various factors, such as the possible rental income, the gender and age of the beneficiary. The usufruct period, i.e. how long someone can use the right, is either determined by an agreement or depends on the life expectancy of the beneficiary. The longer someone can use the right, the lower the value of the property becomes due to the entry of the usufruct right.
Example: A mother wants to transfer an apartment worth 500,000 euros to her daughter. However, the gift tax allowance is only 400,000 euros per child, so that in this case 100,000 euros would have to be taxed. However, if the mother transfers the apartment subject to usufruct and this has a value of 150,000 euros, this can be deducted from the value of the property, resulting in a residual value of only 350,000 euros. This, in turn, is below the tax exemption limits. Therefore, no gift tax would apply in this case.