Renting a flat to relatives: the agreement, rent and actual payments

Decide what kind of family support you want to provide

Perhaps your daughter needs her first home, your parents want to live nearby, or your brother needs somewhere to settle after a separation. Offering a property can help without transferring ownership. Start by deciding whether you want a genuine paid tenancy or an arrangement providing accommodation without rent. A document stating rent that nobody expects to pay will not turn family support into a convincing rental business.

If the property is in the parents' home, check that there is a separate dwelling and genuinely separate households. Paying towards a room while remaining part of the same household is a different arrangement. The official guidance H 21.4 identifies limits on tax recognition in these circumstances.

Prepare two monthly budgets. One should show what your relative can afford, including operating costs. The other should show your financing commitments, owner expenses and allowance for repairs. Treat the family discount as support you have chosen to provide. Do not assume that a future tax saving will always cover the difference. A favourable tax assessment also does not supply cash when a repair invoice falls due.

Discuss the intended housing arrangement, too. Will the flat remain available for long-term letting? Have you already decided to move into it yourself or sell it? These plans matter for both the agreement and its tax assessment. Avoid promising your family complete security while privately relying on getting the property back at short notice.

The general guide to letting a flat covers the wider preparation. For a family tenancy, add a conversation about responsibilities: permission for alterations, reporting defects, managing arrears and dealing with unexpected changes. Write down the answers while relations are good. Clear boundaries reduce the chance that an ordinary landlord decision will later be interpreted as a personal rejection.

Agree terms that both parties can actually follow

A relative renting a home has genuine contractual rights and obligations. Under section 535 of the German Civil Code, the landlord provides and generally maintains the property in a condition suitable for its agreed use, while the tenant owes the agreed rent. Being related does not remove those responsibilities. For tax purposes, the authorities also consider whether the arrangement is serious and implemented in practice.

Use a written agreement identifying the parties, the exact flat, included storage or parking, the starting date, basic rent, operating cost arrangements, payment date and payment method. Where several people own the property or will become joint tenants, identify who is entering the agreement. Everyday expectations about a shared garden or a fitted kitchen should be settled before occupation.

German tax discussions often refer to a Fremdvergleich: a comparison with how unrelated parties would arrange and carry out a transaction. This does not mean a family discount is automatically unacceptable. It means the overall arrangement and its essential obligations need to be credible. Keep an accurate record of later changes instead of producing retrospective paperwork to disguise what actually happened.

A deposit requires an agreement; it is not automatically owed. If you agree a cash deposit, section 551 BGB limits it to three months of basic rent excluding separately stated operating costs. The tenant can pay in three equal monthly instalments, and the money must be held separately from the landlord's assets. Record the condition, keys and meter readings at handover, even when the tenant has known the flat for years.

Establish a defensible local market rent

The tax comparison starts with evidence about the property, rather than the highest asking rent you can find online. In case IX R 7/20, Germany's Federal Fiscal Court held that the local rent index, or Mietspiegel, should generally provide the basis. Comparable type, location and fittings matter, as do the relevant ranges within the index.

Check whether a current local index covers your flat. Keep the floor area, building age, location and relevant features alongside your calculation. An advertisement for a renovated home in another district is not sufficient evidence for your property. Where no suitable index is available, the court identifies other methods, including a reasoned expert valuation, a rental database or rents for at least three comparable homes. Three loosely similar advertisements do not automatically meet that standard.

For this income tax test, the customary local basic rent is generally combined with operating costs that can be passed on under the German Operating Costs Ordinance. Include the corresponding components of the family arrangement on the other side. Comparing only basic rents can give the wrong percentage. So can adding household spending or internet subscriptions without checking whether they belong in the calculation.

Save the source, edition, calculation and assessment date together. Furniture and unusual cost arrangements may require additional work. Our guide to calculating a rental price helps organise the property information. Keep the tax comparison separate from the question of what rent may lawfully be charged under tenancy law: a favourable tax percentage does not override applicable rental restrictions.

Understand the three tax bands before choosing the discount

Section 21(2) of Germany's Income Tax Act, known as the EStG, sets two thresholds. The official income tax handbook, Annex 30 II, explains the forecast required between them. These rules concern letting a dwelling for residential use; they do not establish a minimum rent that relatives must legally pay.

Below 50 per cent of the relevant local market rent, the letting is divided into paid and unpaid portions. Rental expenses are deductible to the extent attributable to the paid portion. Exactly 50 per cent falls into the next band. From 50 to below 66 per cent, a Totalüberschussprognose, meaning a forecast of the overall rental surplus, is required. A positive forecast generally allows full deduction of the associated qualifying expenses. A negative forecast requires allocation between the paid and unpaid portions.

At 66 per cent or more, a residential letting intended to continue long term is treated as fully paid for this purpose. The discount alone then does not trigger a proportional expense restriction. That does not make every invoice deductible or rescue an agreement existing only on paper. Other requirements and exceptional circumstances affecting the intention to earn income still matter.

Consider a fictional German flat with a customary basic rent of €800 and relevant operating costs of €200. The comparison amount is €1,000 monthly. A daughter paying €500 plus €200 pays 70 per cent. At €400 plus €200, the figure is 60 per cent and a forecast is needed. At €250 plus €200, it is 45 per cent and allocation applies. These figures illustrate the calculation; they are not a rent estimate for Düsseldorf.

Make payments real and keep support arrangements understandable

A signed agreement is only the starting point. Set up payments in accordance with its terms and use clear references so that each transfer can be assigned to the correct month. Check receipts rather than assuming a standing order always works. Retain evidence of changes and outstanding amounts as well as successful payments.

Parents may also provide financial support to an adult child. Distinguish the rent obligation from maintenance and voluntary gifts. The existence of support does not automatically rule out a genuine tenancy. However, a supposed payment with a concealed obligation to return the money raises a different issue. Two separate bank entries cannot by themselves make a sham arrangement genuine.

Be particularly careful with offsetting rent against other claims. In BFH case IX R 28/15, the agreed transfers were not made, and an asserted offset against maintenance was not accounted for on the basis of established claims. The decision is not a universal ban on offsetting. It shows why an informal statement that everything balances out is inadequate. Ask a German tax adviser, and where needed a family law specialist, to assess linked obligations before using them.

If your relative falls behind, establish the amount, discuss the cause and document a realistic response. A single late payment does not automatically destroy tax recognition; the courts assess the circumstances as a whole. Repeatedly ignoring a different payment pattern is harder to explain than a specific, documented exception. Agree a repayment schedule only when both sides genuinely intend and are able to follow it.

Separate operating costs, cash flow and the tax forecast

If the agreement provides for operating cost advances, annual accounts are still required within the family. Under section 556 BGB, the statement must generally reach the tenant by the end of the twelfth month following the accounting period. For the calendar year 2026, that normally means 31 December 2027. Late additional claims are subject to statutory restrictions; the family relationship does not extend the deadline.

Do not simply pass the entire Hausgeld, the condominium owner's payment to the owners' association, to the tenant. Management, maintenance and other owner expenses must be distinguished from recoverable operating costs. An advance is also not extra basic rent available to spend permanently. The annual calculation may produce a credit or additional payment, which should then be settled in practice.

The surplus forecast for the 50 to below 66 per cent band is a separate tax calculation. It considers expected taxable rental receipts and qualifying expenses over the relevant period. Under the administrative guidance, long-term letting generally uses 30 years, although particular plans can change the assessment. One profitable month or year is insufficient, and a hoped-for private sale gain is not simply added to make the rental forecast positive.

Provide your tax adviser with acquisition papers, loan details, depreciation information, cost evidence and realistic maintenance assumptions. Keep your cash budget alongside the forecast. Loan principal repayments consume cash but are not the same as deductible interest. Depreciation, in contrast, does not represent a current cash payment. Understanding both calculations helps you decide how much family support the property can sustain.

Review changes without overlooking the tenant's rights

Choose a regular review date, perhaps when preparing the operating cost accounts. Check the rental evidence, relevant cost components and actual payment history. If the fictional comparison amount rises from €1,000 to €1,100 while the daughter still pays €700, the percentage becomes approximately 63.64 per cent. A new tax assessment may be needed even though she has followed the original agreement perfectly.

The contractual rent does not rise automatically with the comparison figure. Section 557 BGB distinguishes agreed increases from statutory routes. A yearly review in your own calendar does not create a right to demand more money immediately to maintain a tax threshold. Plan adjustments early and have their legal basis checked where necessary.

Family relationships also do not remove the usual protections of an ordinary residential tenancy. Selling the flat generally leaves the tenancy in place: section 566 BGB governs the purchaser's entry into the landlord's position. Do not promise vacant possession to a buyer based only on the assumption that a relative will leave when asked.

A fixed term must satisfy section 575 BGB, including a permitted reason communicated in writing when the agreement is made. Being related or wanting flexibility is not enough. A separation, care needs or proposed ownership transfer may require the contract, actual use and tax periods to be reviewed together. Deal with those questions before committing to dates you cannot reliably deliver.

Prepare a complete decision before handing over the keys

Bring together the property facts, supported comparison rent, final agreement and payment plan. Add your owner budget and, where required, the tax forecast. Identify any unresolved issue openly. It is usually easier to correct an assumption before occupation than to reconstruct years of inconsistent payments afterwards.

Check affordability from both sides. Can the tenant meet a realistic operating cost adjustment? Can you pay for essential repairs? Are both parties prepared to follow the agreement even when discussing money feels uncomfortable? If the answer is consistently no, another form of support may fit better. A higher nominal rent does not solve the problem if you intend to waive it repeatedly.

For a proposed letting in Düsseldorf or North Rhine-Westphalia, describe your situation through the property owner letting enquiry. Include the location, size, condition, intended starting date and whether a relative has already been selected. Assessing the property's letting prospects is separate from confirming tax recognition or reviewing legal terms. Those specialist questions belong with a German tax adviser or suitably qualified lawyer.

If the family arrangement does not proceed, the guide to finding a tenant can help you prepare another letting. Whichever route you choose, retain the agreement, handover record, market rent evidence, payments, accounts and subsequent changes in one property file. That makes the arrangement understandable later and gives both the financial decision and the family relationship a firmer foundation.