Paid Waiver of Usufruct Becomes Taxable
The Bundesfinanzhof (BFH, Federal Fiscal Court) has changed its previous assessment of paid redemptions of usufruct rights relating to rental properties (BFH, decision of 10 October 2025 – IX R 4/24). Accordingly, payment for waiving a usufruct right over privately held real property may be taxable as compensation pursuant to § 24 no. 1(a) in conjunction with § 21(1), sentence 1, no. 1 EStG (German Income Tax Act).
The decision was approved for publication on 4 December 2025. The Bundesministerium der Finanzen (Federal Ministry of Finance) addressed the revised case law in a circular dated 21 October 2026.
Usufruct Over Rental Properties
Usufruct rights over privately held real property are frequently used for asset and succession planning. If the usufructuary is entitled to use the property and lets it to tenants, the usufructuary generally derives income from letting and leasing.
Payments made for waiving such a usufruct right were previously generally not considered compensation subject to income tax. The BFH has now expressly departed from this previous assessment.
Departure From Previous Case Law
In its decision in case no. IX R 4/24, the BFH abandons its previous approach. According to the headnote, it expressly departs from its decision of 25 November 1992 – X R 34/89.
The new assessment is based on the fact that, by waiving the usufruct in return for payment, the usufructuary relinquishes a legal position that previously enabled them to derive income from letting and leasing. The payment made in return may therefore constitute taxable compensation for lost income.
Requirements for Taxable Compensation
Classification under § 24 no. 1(a) EStG requires the property concerned to be held as a private asset. In addition, at the time of the waiver, the usufructuary must actually let the property and derive income from it pursuant to § 21(1), sentence 1, no. 1 EStG.
The following circumstances are therefore particularly relevant to the tax treatment:
- The usufruct right must relate to real property held as a private asset.
- The usufructuary must actually let the property when the waiver agreement is concluded.
- At that time, the letting must generate income from letting and leasing.
- Consideration must be paid for relinquishing the usufruct right.
The decision therefore does not automatically apply to every waiver of a usufruct right in return for payment. The decisive factor is the connection between the right relinquished and the income previously derived from letting the property.
No Pressure to Conclude the Agreement Required
The BFH has also changed its previous position regarding the circumstances in which the agreement is concluded. Legal, economic or factual pressure on the usufructuary is not required for § 24 no. 1(a) EStG to apply.
Taxable compensation may therefore also arise if the usufructuary concludes the paid waiver agreement without being subject to any corresponding constraint. Under the new assessment, the requirement of pressure previously taken into account in case law and administrative practice is no longer a prerequisite.
BMF Adopts the BFH’s Revised Approach
In its circular of 21 October 2026, the Bundesministerium der Finanzen (BMF) confirms that the BFH decision is to be applied. The official document is entitled “Paid Waiver of Usufruct Over a Rental Property as Taxable Compensation”.
At the same time, the circular contains a transitional rule. This rule is the result of coordination with the highest tax authorities of the Länder.
Transitional Rule for Contractual Redemptions
The previous administrative position remains applicable to contractually agreed redemptions of usufruct rights completed by the end of the day on which the BFH decision is published in the Bundessteuerblatt (Federal Tax Gazette). The revised assessment is to apply only from the following day.
The publication of the decision in the Bundessteuerblatt is therefore decisive for determining the applicable cut-off date. The date of the BFH judgment, the date on which it was approved for publication and the date of the BMF circular do not determine the relevant transitional cut-off date.
Significance for Existing Usufruct Arrangements
The new case law changes the income tax treatment of paid waiver agreements relating to privately held rental properties. Of particular importance is whether the redemption is still covered by the transitional rule or must already be assessed under the new principles.
The actual use of the property at the time of the waiver also remains decisive. Only if the usufructuary derives rental income at that time will the BFH’s classification as taxable compensation apply, subject to the requirements specified above.
MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law matters concerning real estate, asset transfers and usufruct arrangements. Further information is available under Tax Law Advice.
