\r\n\tA life annuity is a recurring payment promised for the duration of a person’s life. In practice, most people encounter it as a real estate life annuity: You sell your house or apartment, receive a lifelong monthly pension in return, and continue to live in the property via a right of residence secured in the land register. \r\n<\/p>\r\n
\r\n\tThe life annuity is taxed only on the so-called income yield portion (Ertragsanteil), which depends on age at the start of the pension \u2013 at age 70, for example, this is only 15 percent of the annual annuity. The amount of the annuity depends on the property value, age, statistical life expectancy, and the value of a reserved right of residence. \r\n<\/p>\r\n
\r\n\tAnyone considering a life annuity should compare offers, understand the calculation, agree on land register protections (real charge \/ Reallast) and a value guarantee clause \u2013 and be aware of alternatives such as partial sale, reverse mortgage, or usufruct.\r\n<\/p>\r\n\r\n \r\n\t\tBy definition, a life annuity is a regularly recurring, uniform payment promised for the lifespan of a person (“upon the life”). According to \u00a7 759 BGB<\/a>, in case of doubt, the life annuity is to be paid for the lifespan of the creditor and payable in advance. The word “life” refers to the life of the entitled person: The payment generally ends upon their death.\r\n\t<\/p>\r\n\t \r\n\t\tAnyone receiving a life annuity receives a fixed, usually monthly payment until the end of their life \u2013 regardless of how old they actually become. This distinguishes a life annuity from a term annuity, which is paid only for a fixed duration, and from a permanent charge (dauernde Last), the amount of which can adapt to changed circumstances (more on this later).\r\n\t<\/p>\r\n\t \r\n\t\tThe term appears in very different contexts:\r\n\t<\/p>\r\n\t \r\n\t\tIn English, the German “Leibrente” is called “life annuity”. The model also exists in Austria and Switzerland, partly with differing tax rules \u2013 a brief overview follows at the end of the article.\r\n\t<\/p>\r\n<\/section>\r\n\r\n \r\n\t\tWhen selling a house on a life annuity basis, you sell your property to a buyer \u2013 this can be a commercial provider, a foundation, a private investor, or a family member. Instead of receiving the full purchase price at once, you receive a lifelong monthly annuity. \r\n\t<\/p>\r\n\t \r\n\t\tIn most cases, you also retain a lifelong right of residence or usufruct in the property. Ownership passes to the buyer upon notarization and registration in the land register.\r\n\t<\/p>\r\n\t \r\n\t\tA life annuity with a right of residence is the standard case: You continue living in your home, and the annuity is lower as a result. A life annuity without a right of residence is considered if you plan to move out anyway, e.g., into a smaller apartment or a care home \u2013 the monthly annuity is then significantly higher because no residential value is deducted. \r\n\t<\/p>\r\n\t \r\n\t\tHybrid models are also common: a lump-sum payment at the beginning plus a reduced lifelong annuity. This provides liquidity, for example to settle debts or make the house age-accessible.\r\n\t<\/p>\r\n\t \r\n\t\tIn addition, there are special forms such as the hire-purchase life annuity, where the buyer effectively pays off the property in installments while living there, as well as regional peculiarities \u2013 such as the traditional handover of a farm for a life annuity in Bavaria, Tyrol, or Austria, where the farm transferee promises the retiring farmers an annuity, right of residence, and often care services.\r\n\t<\/p>\r\n<\/section>\r\n\r\n \r\n\t\tHow is a life annuity calculated? The basic formula is simpler than many think. It only gets complicated with actuarial details. Simplified, the following applies:\r\n\t<\/p>\r\n\t \r\n\t\tThe annuity present value factor (also called multiplier) reflects statistical remaining life expectancy and an interest rate. For tax purposes, the Federal Ministry of Finance annually publishes multipliers based on the current mortality table from the Federal Statistical Office<\/a>; the legal basis is \u00a7 14 Valuation Act (BewG)<\/a>. \r\n\t<\/p>\r\n\t \r\n\t\tCommercial providers use their own calculations, which additionally include maintenance costs, risk deductions, and profit margins \u2013 which is why offers sometimes differ significantly from one another.\r\n\t<\/p>\r\n\t \r\n\t\tA 75-year-old female owner sells her house valued at \u20ac300,000 on a life annuity basis and retains a lifelong right of residence. The local customary cold rent for the house is \u20ac1,000 per month. Her statistical remaining life expectancy is around 13 years, and the multiplier (simplified) is approximately 9.7.\r\n\t<\/p>\r\n\tWhat is a life annuity? Definition and meaning<\/h2>\r\n\t
Where life annuities occur<\/h3>\r\n\t
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How does the real estate life annuity work?<\/h2>\r\n\t
The typical components of a life annuity contract<\/h3>\r\n\t
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Variants: with right of residence, without right of residence, with lump-sum payment<\/h3>\r\n\t
Calculating a life annuity: Formula, example, and calculator<\/h2>\r\n\t
\r\n\t\tMonthly life annuity = (Property value \u2212 Capital value of the right of residence) \u00f7 Annuity present value factor \u00f7 12\r\n\t<\/blockquote>\r\n\t
Calculation example: Life annuity with right of residence<\/h3>\r\n\t