Reinwald

Usufruct can be an expedient – albeit complex – instrument for tax planning in German tax law. It enables the separation of ownership and right of use. This paper examines in which cases the right of usufruct is favorable for tax purposes and which alternatives are conceivable. It analyses the academic literature, jurisdiction and administrative provisions with regard to the assessment of usufruct for income and inheritance tax purposes. The usufruct over private real estate is a proven and largely legally secure instrument for structuring anticipated inheritance and shifting income. However, there is some legal uncertainty regarding the usufruct over capital assets, business shares and unincorporated firms. This paper provides a topical overview of the fiscal treatment of usufruct and derives adequate options for tax planning.