Gifting a Rented Property in Germany: Gift Tax 2026
Transferring a rental property during your lifetime moves more than the title deed: it moves a tax file. German inheritance and gift tax law (ErbStG) treats let residential property more gently than other assets – income tax law treats it more harshly than most people expect, because the recipient inherits the donor's depreciation rather than a fresh acquisition cost. This article sets out the figures the statutes actually contain, and what they add up to for a real property.
What is being gifted – and what the tax office values
Taxable is "any gratuitous benefit inter vivos to the extent that the recipient is enriched at the expense of the donor" (§ 7 para. 1 no. 1 ErbStG). The tax arises "at the time the benefit is carried out" (§ 9 para. 1 no. 2 ErbStG).
What you once paid is irrelevant. The figure used is the Grundbesitzwert, the property value the tax office assesses separately under the German Valuation Act (§ 12 para. 3 ErbStG). Which method applies depends on the property type (§ 182 BewG): condominiums and one- or two-family houses by the comparative value method, apartment buildings by the income approach, the rest by the asset value method. That income approach follows the same logic as the income capitalisation method used when buying.
The 10% discount for let residential property
The provision that matters most to landlords is short: qualifying properties are recognised at 90% of their value (§ 13d para. 1 ErbStG). The 10% discount is not an option to be claimed – it applies automatically once the three conditions of § 13d para. 3 ErbStG are met:
- The asset is developed land or a part of it let for residential purposes (no. 1).
- If the property sits in a third country, that country must be obliged to provide administrative assistance to the OECD standard (no. 2). Inside the EU and EEA the question does not arise.
- It does not belong to privileged business assets within the meaning of § 13a ErbStG (no. 3).
"Let for residential purposes" is the whole test. A commercially let unit, a vacant flat with no tenancy in place and an owner-occupied flat are not covered by the wording. In mixed-use buildings the discount applies only to the part that meets the condition; the commercial share is recognised in full.
A second trap sits in § 13d para. 2 ErbStG: anyone obliged by a disposition of the donor to pass the property on to a third party cannot claim the reduced valuation to that extent. The discount rewards holding, not passing through.
The discount cuts the debt deduction too
For a financed property, the 90% figure is only half the story. § 10 para. 6a sentence 1 ErbStG provides: "Debts and encumbrances are not deductible to the extent that the assets with which they are economically connected are exempt from tax." If the property is 10% exempt, the mortgage secured on it is only 90% deductible.
The benefit of § 13d ErbStG is therefore not 10% of market value but 10% of the equity in the property: small for a recently bought, heavily geared flat, large for a debt-free legacy holding.
Allowances and tax classes
The tax class follows the family relationship (§ 15 para. 1 ErbStG), and the personal allowance follows the tax class (§ 16 para. 1 ErbStG):
| Recipient | Tax class | Allowance |
|---|---|---|
| Spouse, registered civil partner | I | €500,000 |
| Child, stepchild, child of a deceased child | I | €400,000 |
| Grandchild (parent still living) | I | €200,000 |
| Others in class I (parents and grandparents on death) | I | €100,000 |
| Siblings, nieces, nephews, children-in-law, stepparents | II | €20,000 |
| Everyone else, e.g. an unmarried partner | III | €20,000 |
Parents fall into class I only "on acquisitions by reason of death" (§ 15 para. 1 ErbStG). A gift from a child to a parent lands in class II – a distinction routinely missed when property is transferred back within a family.
The rates
A single rate is applied to the taxable acquisition, that is the amount after the allowance (§ 19 para. 1 ErbStG):
| Acquisition up to and including | Class I | Class II | Class III |
|---|---|---|---|
| €75,000 | 7% | 15% | 30% |
| €300,000 | 11% | 20% | 30% |
| €600,000 | 15% | 25% | 30% |
| €6,000,000 | 19% | 30% | 30% |
| €13,000,000 | 23% | 35% | 50% |
| €26,000,000 | 27% | 40% | 50% |
| over €26,000,000 | 30% | 43% | 50% |
Because the rate applies to the whole acquisition, one euro over a threshold can be expensive. Against that stands the hardship adjustment of § 19 para. 3 ErbStG: the excess over the previous threshold is only levied to the extent it can be covered out of half of the amount exceeding that threshold at rates up to 30%, and out of three quarters above 30%.
Worked example: an apartment building to a child
An apartment building let entirely for residential purposes passes to a child. The assessed property value is €900,000 and the recipient takes over the €300,000 mortgage.
| Step | With § 13d ErbStG | Without the relief |
|---|---|---|
| Assessed property value | €900,000 | €900,000 |
| Value recognised | €810,000 | €900,000 |
| Deductible mortgage | −€270,000 | −€300,000 |
| Enrichment | €540,000 | €600,000 |
| Personal allowance | −€400,000 | −€400,000 |
| Taxable acquisition | €140,000 | €200,000 |
| Rate, class I | 11% | 11% |
| Gift tax | €15,400 | €22,000 |
The saving is €6,600 – the rate applied to €60,000, and €60,000 is 10% of €600,000, that is of the equity, not of market value. The taxable acquisition is rounded down to the nearest full 100 euros (§ 10 para. 1 ErbStG).
The ten-year clock
The allowance is not a lifetime quota. § 14 para. 1 ErbStG aggregates only "several benefits accruing from the same person within ten years". Once ten years have passed, the full amount of § 16 ErbStG is available again.
For a portfolio this is the strongest lever, and it works on a single property too, by transferring co-ownership shares. In the example above, half the property carries an assessed value of €450,000, a recognised value of €405,000 and a deductible mortgage share of €135,000. The enrichment of €270,000 sits below the €400,000 allowance – the tax is nil. If the second half follows more than ten years later, no aggregation applies.
Two caveats. The example assumes an unchanged value – if the assessed value rises, so does the base for the second half. And the ten-year clock only runs while the donor is alive. Anyone planning to use it has to start early.
The income tax side: no new depreciation base
This is the most expensive misconception. For assets acquired without consideration, depreciation is measured "by the acquisition or production costs of the legal predecessor […] and by the percentage that would apply to the legal predecessor" (§ 11d para. 1 sentence 1 EStDV). The recipient steps into the donor's depreciation; the current market value creates no new base. Sentence 2 draws the line: further deductions are permitted only to the extent that the write-offs taken by predecessor and successor together "have not yet led to full depreciation". A fully depreciated building stays fully depreciated. Which rate applies is covered in the article on building depreciation (AfA).
The same applies to the ten-year period of § 23 EStG: "In the case of acquisition without consideration, the acquisition […] by the legal predecessor is attributed to the singular successor for the purposes of this provision" (§ 23 para. 1 sentence 3 EStG). If the donor bought twelve years ago, the recipient can sell tax-free straight away; the gift does not start a new period. More in the article on the speculation period.
Transfer tax, usufruct, notification
No real estate transfer tax arises. Exempt is "the acquisition of land by reason of death and gifts of land inter vivos within the meaning of the Inheritance and Gift Tax Act" (§ 3 no. 2 GrEStG). The same sentence adds a limit: gifts subject to a charge are taxable "as regards the value of such charges as are deductible for gift tax purposes" – a reserved usufruct, for instance, is taxable to that extent. Spouses (§ 3 no. 4 GrEStG) and lineal relatives (§ 3 no. 6 GrEStG) are exempt in any case.
A usufruct reduces the value of the gift. If the donor retains the income, the capitalised value of that right reduces the enrichment. It is a multiple of the annual value; the multipliers follow the Federal Statistical Office's mortality table and the capitalised value is calculated at an interest rate of 5.5% (§ 14 para. 1 BewG). § 16 BewG caps the annual value at the figure obtained "if the value to be recognised for the asset used […] is divided by 18.6". Who declares the rental income afterwards depends on how the usufruct is structured and belongs with an adviser.
Three months to notify. The acquisition must be reported to the tax office "within three months of becoming aware of it", by both sides (§ 30 paras. 1 and 2 ErbStG). Where the gift is notarised the notification is not required (§ 30 para. 3 sentence 2 ErbStG) – for property, notarisation is mandatory anyway and the notary files the report.
Not to be confused: the family home
The exemption for the family home (§ 13 para. 1 nos. 4a to 4c ErbStG) is frequently mixed up with the discount for rental property, but it requires the opposite – owner occupation. No. 4a covers gifts between spouses during their lifetime "to the extent that a dwelling therein is used for own residential purposes". Nos. 4b and 4c apply only to acquisitions by reason of death, for children additionally capped "to the extent that the living area of the dwelling does not exceed 200 square metres", and both lapse retroactively if the recipient moves out within ten years. For an investment property none of this is a route – there the discount of § 13d ErbStG is what remains.
Before the transfer: get the numbers straight
Assessed value, remaining debt, purchase date and depreciation already taken decide the tax bill. RenoDiary keeps these figures per property.
Try it for freeWhat the courts have decided
The Federal Fiscal Court (Bundesfinanzhof, BFH) has settled two questions that come up regularly in practice: when does a not-yet-let property still qualify for the discount, and how solid is the calculation method for a usufruct?
BFH, judgment of 11 December 2014 – II R 24/14
The BFH interpreted the identically worded predecessor of today's § 13d para. 3 no. 1 ErbStG (then § 13c ErbStG): the discount is unavailable if, at the time the tax arises, the property is neither let nor intended to be let for residential purposes. Conversely, a bare intention is not enough either – a still-vacant property only qualifies if there was a concrete intention to let it and its implementation had already begun in an objectively verifiable way, for example through a listing or an estate agent's instruction. For a gift, that means: anyone who vacates a flat shortly before the transfer in order to re-let it should document that step before the gift is carried out.
BFH, judgment of 20 November 2024 – II R 38/22
The capital value of a reserved usufruct is calculated using the multiplier from the official mortality tables under § 14 (1) BewG – and those tables differ by sex. The BFH held that this does not violate the constitutional prohibition on discrimination: the statistically different life expectancy is an objective reason, not an impermissible unequal treatment. In practice, the judgment confirms the calculation method described in this article as settled law.
Frequently asked questions
Does the discount apply to a single let condominium?
Yes. § 13d para. 3 no. 1 ErbStG speaks of "developed land or parts of it" let for residential purposes. A let condominium qualifies just as an apartment building does. Use decides, not size.
What if the tenant moves out shortly after the gift?
Unlike the family home in § 13 para. 1 nos. 4b and 4c ErbStG, § 13d ErbStG has no holding period and no retroactive lapse. What counts are the circumstances when the tax arises, that is when the benefit is carried out (§ 9 para. 1 no. 2 ErbStG).
Does the allowance apply per parent?
Yes. The allowance under § 16 para. 1 ErbStG applies per donor and recipient, and each parent is a separate donor. It is used up for ten years each time, because earlier acquisitions from the same person are added back under § 14 para. 1 ErbStG.
Does the recipient have to declare the rental income?
From the moment the source of income passes across, yes – it goes into their Anlage V, the German rental income schedule. Building depreciation may be claimed only to the extent § 11d para. 1 EStDV allows: the donor's base and percentage, limited to the part not yet written off.
Sources
- § 7 ErbStG (gifts inter vivos) — Gesetze im Internet (retrieved on 22 August 2026)
- § 9 ErbStG (when the tax arises) — Gesetze im Internet (retrieved on 22 August 2026)
- § 10 ErbStG (taxable acquisition, deduction of debts) — Gesetze im Internet (retrieved on 22 August 2026)
- § 12 ErbStG (valuation, assessed property value) — Gesetze im Internet (retrieved on 22 August 2026)
- § 13 ErbStG (family home, nos. 4a to 4c) — Gesetze im Internet (retrieved on 22 August 2026)
- § 13d ErbStG (residential property let to tenants) — Gesetze im Internet (retrieved on 22 August 2026)
- § 14 ErbStG (aggregation of earlier acquisitions) — Gesetze im Internet (retrieved on 22 August 2026)
- § 15 ErbStG (tax classes) — Gesetze im Internet (retrieved on 22 August 2026)
- § 16 ErbStG (personal allowances) — Gesetze im Internet (retrieved on 22 August 2026)
- § 19 ErbStG (rates, hardship adjustment) — Gesetze im Internet (retrieved on 22 August 2026)
- § 30 ErbStG (duty to notify) — Gesetze im Internet (retrieved on 22 August 2026)
- § 14 BewG (capitalised value of lifetime usufructs) — Gesetze im Internet (retrieved on 22 August 2026)
- § 16 BewG (cap on the annual value) — Gesetze im Internet (retrieved on 22 August 2026)
- § 182 BewG (valuation of developed land) — Gesetze im Internet (retrieved on 22 August 2026)
- § 3 GrEStG (exemptions from real estate transfer tax) — Gesetze im Internet (retrieved on 22 August 2026)
- § 11d EStDV (depreciation after acquisition without consideration) — Gesetze im Internet (retrieved on 22 August 2026)
- § 23 EStG (private disposal transactions) — Gesetze im Internet (retrieved on 22 August 2026)
- BFH, judgment of 11 December 2014 – II R 24/14 (discount for a not-yet-let but rental-intended property) — Bundesfinanzhof (retrieved on 25 August 2026)
- BFH, judgment of 20 November 2024 – II R 38/22 (sex-differentiated mortality tables for usufruct valuation constitutional) — Bundesfinanzhof (retrieved on 25 August 2026)
This article offers general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. The assessed property value is determined separately by the tax office; the actual liability depends on that valuation, on earlier gifts and on how the transfer agreement is drafted.