Construction financing and support without ownership rights

Hello dear forum members,

my wife and I (grandchildren) are in the fortunate situation to be able to move into the listed house of my grandparents without rent. In this context, we would like to carry out some renovations and conversions, e.g. attic conversion, electrical installation, possibly energy efficiency and general renovations.

The question now is the ownership situation. My grandparents were advised to remain owners and grant us a right of residence and additionally enter a testamentary pre-emption right. Both would be handled notarized (the lifelong right of residence possibly also in the land register). In the event of inheritance, we would then have to pay out 2 children.

The question now is according to which value the payout should be made. We now want to determine the market value and divide this amount into thirds (1 part as a gift from us) and the other 2 thirds then quantified to be included in the will so that years later everyone knows exactly what to expect. Is this approach advisable?

Is there anything we need to consider regarding construction financing? The land register is unencumbered and could be encumbered by us.

Furthermore, we would like to take advantage of the tax benefits, but we see problems here because the KFW or § 7i Income Tax Act always refers to the owner. Do we only have the opportunity to use tax advantages with a right of residence?

If there are problems here, we would also consider a purchase with direct payout to the children, as no real estate transfer tax would be incurred (relatives in the direct line) and we are also thinking about inheritance tax etc. and want to avoid it as much as possible. We are simply not tax experts.

Many thanks for your help and sorry for the special questions, it would just be nice if we could get a few tips. Visits to the tax advisor/notary etc. can still follow :D

Best regards

Is there anything we need to consider with construction financing?

The right of residence in the land register must be subordinated, otherwise the house becomes unpledgeable. This has the serious disadvantage that the right could be deleted within the framework of the foreclosure proceedings.

Furthermore, we would like to use the tax benefits, but see problems here because with KFW or § 7i Income Tax Act it is always spoken of the owner. Do we only have the possibility to use tax advantages with a right of residence?

KfW exclusively for the owner. Right of residence is useless in this regard. I have no idea about taxes; I think it is the same there.

since the real estate transfer tax would not apply (relatives in direct line) and we are also considering inheritance tax, etc., and want to avoid these as much as possible.

Sale 100% to you is tax-free. You can then transfer 50% to your wife tax-free. Otherwise, you should really get professional advice. It is too complex for that.

Hello, be sure to determine the value before the renovation. You don’t want the relatives to appraise the value after the renovation^^ When an inheritance is pending, some family members suddenly get quite excited

Otherwise, I agree with , it could become a complex matter, also with the financing that has to be arranged before your right of residence.

Not every bank likes listed buildings either

Somehow, the other way around would be the better solution...
- Transfer the house to you (since it is in a direct line without real estate transfer tax, if the house value <200,000€ (before renovation), it is also exempt from inheritance tax
- Payout to the 2 children
- Lifetime right of residence for the grandparents in their apartment, possibly even dividing the house (into 2 condominiums), so that you can encumber your apartment without problems
- KfW as owner is not a problem
- § 7i Income Tax Act can at most be applied to the "rented" apartment. It might not even work with a right of residence. A good tax advisor should be consulted here.

For § 7i Income Tax Act and the loan, the variant "full purchase" (without right of residence in the deduction) and then "rental" to the grandparents might be an option. Then at least the renovation portion of the grandparents' apartment could be deducted 100% over 12 years. Unfortunately, the portion of your apartment cannot.

If you are not the owner, you can neither register a land charge nor finance nor deduct anything for tax purposes. There is the possibility that the grandparents finance and you pay the installments, so to speak as rent. However, everything should be clearly documented in writing with all parties involved after thorough consultation with the notary and tax advisor. Monument protection expenses can be better depreciated, even if self-occupied.

if you are not an owner, you can neither register a land charge nor finance, nor deduct anything for tax purposes. There is the option that the grandparents finance and you pay the installments,

That is nonsense. a) the bank registers the land charge involving the owners (personal liability of the borrowers and not the owners) b) the financing is in the name of the TE + wife, grandparents sign the land charge purpose declaration to establish the connection between the land charge and the loan c) financing by the grandparents would also have to be bearable for them (because of age + pension + short term / high repayment), which is not always so easy for banks as an "older" person