Tax Classification of Reserved Usufruct in Share Transfers
The gratuitous transfer of shares or interests in the context of anticipated succession regularly raises the question, where a usufruct is reserved, of whether this constitutes consideration. For shares in corporations, it is recognised that the granting of a usufruct right in the case of a gratuitous transfer does not constitute consideration. A disposal within the meaning of § 17 EStG (German Income Tax Act) therefore does not exist in this constellation.
This classification corresponds to the case law of the Bundesfinanzhof (BFH, Federal Fiscal Court), in particular the judgment of 18 November 2014 – IX R 49/13, which is published in the official collection under BStBl II 2015, p. 224. The income tax guidance notes also address reserved usufruct in connection with § 17 EStG.
Uncertainty for Opting Companies under § 1a KStG
Background to the Option for Corporate Taxation
Commercial partnerships and professional partnerships may, subject to the requirements of § 1a KStG (German Corporate Income Tax Act), opt to be taxed like a corporation. For income tax purposes, certain interests in an opting company are thereby treated like shares within the meaning of § 17 EStG.
Particularly in the case of Kommanditgesellschaften (KGs, limited partnerships) that have exercised the option under § 1a KStG, the question arose as to how the transfer of a partial interest subject to the reservation of a usufruct is to be assessed for tax purposes. The uncertainty resulted from the fact that the case law on partnerships may, in certain factual constellations, classify the granting of a usufruct right as remuneration. Reference is made in particular to the BFH judgment of 6 May 2010 – IV R 52/08.
Response at Federal-State Level
At federal-state level, this question was answered in favour of taxpayers. Accordingly, a partial interest to be transferred in a limited partnership, including the associated interests in fixed capital accounts and specific reserve accounts, is, due to the option under § 1a KStG and for income tax purposes, regarded in its entirety as a share within the meaning of § 17 para. 1 sentence 1 and sentence 3 EStG.
If such a partial interest is transferred gratuitously and the transferor reserves a usufruct right, no disposal within the meaning of § 17 EStG exists. The granting of the reserved usufruct is not treated as consideration in this constellation.
Distinction from Case Law on Partnerships
The tax classification must be carefully distinguished from cases in which, in the case of partnerships, the creation of a usufruct right may include elements of remuneration. The special feature of the opting company is that the relevant partial interest is treated for income tax purposes like a share within the meaning of § 17 EStG.
The assessment is therefore not based on the general principles applicable to co-entrepreneurial interests without an option, but on the special income tax fiction in connection with § 1a KStG. The decisive factor is that the transfer is made gratuitously and that the usufruct is merely reserved.
Legislation on the Annual Tax Act 2026
Statement of the Bundesrat
On 25 September 2026, the Bundesrat (Federal Council) issued a statement on the government draft of the Annual Tax Act 2026 and also addressed questions relating to usufruct. The Annual Tax Act 2026 was adopted by the federal cabinet on 12 August 2026 and debated in the Bundestag (German Federal Parliament) at first reading on 8 October 2026. The government draft is available as Bundestagsdrucksache 21/8283 (Bundestag printed paper) of 30 September 2026.
The Finance Committee of the Bundestag held a public expert hearing on this matter. The further deliberations concern, among other things, provisions connected with usufruct rights and tax-entangled assets.
Proposed Rules on the Redemption of a Usufruct
Under a new § 22 no. 6 EStG, payments for the redemption of a usufruct are to become taxable as other income for the recipient to the extent that they lead to acquisition costs of a tax-entangled asset for the payer. Shares in a GmbH (German limited liability company) held as private assets are cited as an example. This legislative consideration contrasts with the previous BFH case law on certain cases involving the redemption of a usufruct.
In this regard, the Bundesrat states that a redemption payment may lead to subsequent acquisition costs for the owner encumbered by the usufruct and is therefore tax-entangled for the payer, whereas under the previous assessment it may not be taxable for the recipient. By contrast, for the redemption of a usufruct right in a rented property held as a private asset, the Bundesrat does not see any corresponding taxation gap because the BFH, in its judgment of 10 October 2025 – IX R 4/24, assumed taxation under § 24 no. 1 letter a EStG.
According to the BFH judgment of 11 February 2025 – IX R 14/24, the redemption of a usufruct in GmbH shares is not taxable for the usufructuary if the latter is not entitled to beneficial ownership under § 39 para. 2 no. 1 AO (German Fiscal Code). The lower court was the Finanzgericht Köln (Cologne Fiscal Court) under case reference 7 K 95/23.
Further Proposed Amendments Relating to Transfer Cases
The Bundesrat also proposed inserting an additional sentence after § 6 para. 3 sentence 3 EStG. Accordingly, the gratuitous transfer of a business or part of a business subject to the reservation of a usufruct is to be deemed a transfer within the meaning of § 6 para. 3 sentence 1 EStG.
In addition, an amendment to § 17 para. 2 EStG was suggested. Under this amendment, purchase price components that depend on a condition precedent are to be taken into account already in the assessment period of the disposal. This so-called earn-out rule concerns a different group of cases but is likewise connected with the tax recording of disposals of shareholdings.
§ 17 EStG in the version of 29 June 2026 also contains a sentence 4 following the rule on shares in opting companies. According to this, sentence 3 is not to be applied in the cases of § 6 para. 3 AStG (German Foreign Tax Act).
Practical Significance for Transfers of Interests
The classification at federal-state level creates an important tax clarification for the described case of a gratuitous transfer of a partial interest in an opting limited partnership subject to a reserved usufruct. The key point remains that, due to the option under § 1a KStG, the partial interest as a whole is deemed, for income tax purposes, to be a share within the meaning of § 17 para. 1 sentence 1 and sentence 3 EStG.
The following points are of particular importance:
- The transfer must be made gratuitously.
- The usufruct is merely reserved.
- The affected partial interest also includes the associated interests in fixed capital accounts and specific reserve accounts.
- The assessment is made for income tax purposes.
- A disposal within the meaning of § 17 EStG does not exist in this constellation.
The tax administration also reports that tax offices are increasingly receiving applications for binding rulings on structures involving reserved usufructs in company shares or interests. Structures are also mentioned in which, for example, a so-called dwarf share without usufruct is retained.
Tax Law Advice from MTR Legal
The transfer of interests in opting companies subject to reserved usufruct affects several layers of tax regulation, in particular § 1a KStG, § 17 EStG and related questions of gratuitous transfer. The classification depends on the specific corporate and tax law structure of the individual case. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth private individuals on such tax law issues; further information can be found under Legal advice in tax law.
