The most important tax and legal principles are summarized below in an easy-to-understand manner.
Selling within the family as a planning tool
Traditional asset transfers within the family often take the form of gifts or inheritance. However, both methods reach their limits when the gift or inheritance tax allowances have already been used up. In cases where
- allowances have already been used up,
- parents still need liquidity, and/or
- assets are to be transferred gradually,
a sale within the family in return for payment can be a sensible arrangement.
The reason: a sale does not generally trigger gift tax. At the same time, certain types of tax can be completely waived for sales within the family – in particular, real estate transfer tax. The sale can therefore be an interesting interim solution between gift and inheritance from a tax perspective.
Exemption from real estate transfer tax as a key advantage
In Germany, real estate purchases are generally subject to real estate transfer tax. Depending on the federal state, this tax ranges between 3.5% and 6.5% of the purchase price.
However, there is an exception for transfers within the family. This exemption applies to both gratuitous transfers and genuine purchase agreements between close relatives. The following are exempt from real estate transfer tax:
- Purchases between spouses or registered partners (Section 3 No. 4 GrEStG) and
- Purchases between direct relatives (Section 3 No. 6 GrEStG).
This includes, in particular, parents and children, grandparents and grandchildren, as well as stepchildren. However, siblings or more distant relatives are not eligible for this exemption.
This eliminates a tax that can regularly reach five-figure amounts when selling to third parties.
Be careful with income tax
However, it is important to note that a family sale is not automatically completely “tax-free.” Even in the case of a family sale, one point remains particularly important: income tax on private capital gains under Section 23 of the German Income Tax Act (EStG).
Regardless of the family relationship, income tax on private capital gains may be payable in accordance with Section 23 of the German Income Tax Act (EStG). This applies to real estate that is sold within ten years of acquisition. An important exception applies to owner-occupied real estate: the sale remains tax-free if the property was used for personal residential purposes in the year of sale and in the two preceding calendar years.
The family relationship therefore does not protect against income tax on a possible capital gain. This point should be examined at an early stage in any planning.
Sale at market price or family price? The right purchase price and the risk of a “mixed gift”
In practice, the question of the right purchase price often arises. In principle, a sale may also be made below market value. However, this then regularly results in a so-called mixed gift (part sale, part gift for tax purposes).
This means:
- The part for which payment is made is considered a sale.
- The difference to the market value is considered a gift.
This gift portion may in turn trigger gift tax. A realistic valuation of the property is therefore a central component of any arrangement.
Financing within the family – typical arrangements
Another advantage of selling to family members is flexible financing. Often, the purchase price is not paid in full immediately. Typical arrangements include:
- Seller loans from parents
- Deferral of the purchase price
- Installment payments within the family
Such models can help to transfer assets gradually while ensuring that parents are provided for.
New uncertainty: Real estate transfer tax exemptions for family real estate companies under the MoPeG
“Since 1 January 2024, the German Act on the Modernization of Partnership Law (MoPeG) has abolished the civil law concept of joint ownership in partnerships. As several real estate transfer tax exemptions are based on this concept (Sections 5, 6 and 6a GrEStG), a transitional rule applies until 31 December 2026. The future treatment from 2027 onwards remains uncertain. Existing family real estate structures should therefore be reviewed.”See also: https://buse.de/en/blog-en/tax/exemption-from-real-estate-transfer-tax-2026/
Conclusion
Selling real estate within the family is a versatile planning tool. The potential exemption from real estate transfer tax is particularly attractive. At the same time, income tax and gift tax must be carefully considered. As is so often the case in succession planning, the tax details determine the success of the arrangement. Early planning and expert advice are therefore essential.
Summary of the key facts
- The sale of real estate within the family can be a tool for succession planning if tax allowances have already been exhausted.
- Between spouses or close relatives (parents and children, grandparents and grandchildren, as well as stepchildren) the sale of real estate does not trigger real estate transfer tax.
- Financing can be tailored to individual circumstances and also provides financial security for parents, for example.
- Intrafamily real estate sales offer flexible, tax-efficient, and affordable options for succession planning when structured carefully and with foresight.
