Beneficial interest in children as a means of tax planning

The usufruct to children is an effective tax-saving model for parents to support their children financially for a certain period of time (e.g. during vocational training).

What is it all about?

In this case, parents transfer usufruct of an asset, such as a rental property or capital assets, to their children for a fixed period of time (e.g. education period). The parents remain the owners of the assets. The children only receive the right to receive the income from these assets, for example rental income or investment income (e.g. interest), through the usufruct granted.

Although this transaction is subject to gift tax, the children’s personal allowance of EUR 400,000 per child and parent ensures that there is no tax burden if the transaction is cleverly structured.

Potential savings in income tax

For parents, this model also offers considerable income tax savings, as the income that now accrues to the children reduces the parents’ taxable income. This model is particularly advantageous in terms of income tax if the children have their own tax allowances and deductions, such as the basic allowance or special expenses for initial education. This means that the children can often enjoy the income from the usufruct tax-free or at a very low tax rate.

For further information or individual advice on this and other tax structures, please do not hesitate to contact us. It is important to consider individual circumstances and options when giving tax advice in order to get the best out of them for you.

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