German law defines applicable lifetime gifts under § 7 ErbStG, and generally, they include:
- A financial donation without consideration,
- Compensation for a renunciation of inheritance or a waiver of the compulsory portion,
- Establishing a foundation with assets through a foundation transaction
- The transfer of assets and properties,
- The waiver of loans,
Such gifts can be taxable in certain circumstances.
Whether gift tax applies depends on the gift’s nature and value and the family relationship between the people involved in the transaction. Such gifts can be tax-free up to a specific figure; however, if that amount is exceeded, it must be reported to the relevant tax office, and therefore gift tax can apply.
At Schlun & Elseven Rechtsanwälte, our inheritance law team is ready to advise you on German inheritance law and gift tax matters.
Gifts and tax exemptions interact with multiple areas of law, such as corporate law (business assets), family law, real estate law, the law of foundations and, of course, inheritance law. Therefore, our multidisciplinary firm is ideally placed to advise you.
If you have a particular issue or legal question concerning German inheritance law, you can contact our law office at any time. Our lawyers for German inheritance law can be reached by phone, and email and also provide video conferencing options. For more legal information, please visit our German inheritance law homepage.
Our Services in Matters of Lifetime Gift Tax
Our inheritance lawyers provide full-service legal advice and support regarding all matters related to lifetime gifts and tax exemptions.
In particular, our service consists of the following:
- Advice tailored to your situation in matters concerning gift tax,
- Family foundations: establishment and implementation,
- Gift tax calculations,
- Guidance in cross-border gifts and how tax treaties with the USA, France, Denmark and Sweden (among others) can impact these cases,
- Preparation and implementation of tax avoidance strategies,
- Representation in legal disputes,
- Tax-optimized structuring of gifts (real estate, business assets, other)
- Valuations of real estate, personal and business assets for the gift tax.
Particularly for clients outside of Germany, our lawyers are ready to advise on complex matters relating to gift tax and how clients can benefit from tax exemptions.
Furthermore, our team comprehensively advises on other issues in German inheritance law, such as the community of heirs, the inheritance contract, drafting wills, the compulsory share of inheritance and business succession planning.
Lifetime Gifts according to German Law
Asset donations that reach a certain amount or real estate gifts can be taxed if they exceed the allowable exemption. This exemption is based on the nature of the asset/property and the relationship between the donor and the donee. Therefore, if you gain such an asset from another person without paying for it, you may need to pay tax.
Should you receive such a lifetime gift, the recipient and the donee need to notify the tax office within three months of the exchange. Afterwards, should it apply, the German tax authorities may seek a gift tax return, and the person generally has one month to complete it. Should the donation involve property exchanges, it will likely need to be notarized by a professional notary.
Gift tax is in place to prevent people from avoiding tax before they inherit. The gift tax applies during the donor’s lifetime, and there are differences regarding the applicable tax-free allowances. Owner-occupied residential property is tax-free for spouses but not for their descendants. Therefore, parents and grandparents have a less favourable tax class when taxing gifts.
Gift Tax: Classes and Exemptions
Regarding the taxation of gifts, the relationship between the parties plays a critical role. Essentially, there are three classes of recipients, and the tax-free allowance is based on where the recipient finds themselves:
- Tax class I: Spouses and civil partners, children and stepchildren and grandchildren,
- Tax class II: Siblings as well as their descendants, step-parents, children-in-law, parents-in-law, divorced spouses as well as partners in a dissolved civil partnership and, if applicable, parents as well as grandparents,
- Tax class III: other acquirers (friends rather than family members) and special-purpose donations.
§ 16 ErbStG outlines the tax-free exemptions as the following:
- …spouse and of the civil partner in the amount of 500,000 euros;
- of the children within the meaning of tax class I No. 2 and of the children of deceased children within the meaning of tax class I No. 2 in the amount of EUR 400,000;
- of the children of children within the meaning of tax class I no. 2 in the amount of 200,000 euros;
- of the other persons in tax class I in the amount of 100,000 euros;
- of the persons of tax class II in the amount of 20,000 euros;
- of the other persons of tax class III in the amount of 20,000 euros.
If the above amounts are exceeded, the gift tax rate applies. How this is determined is also based on the person’s tax class and can be seen here:
|
The value of the taxable acquisition is |
Tax Class I | Tax Class II | Tax Class III |
| Up to €75,000 | 7% | 15% | 30% |
| €75,000–€300,000 | 11% | 20% | 30% |
| €300,000–€600,000 | 15% | 25% | 30% |
| €600,000–€6,000,000 | 19% | 30% | 30% |
| €6,000,000–€13,000,000 | 23% | 35% | 50% |
| €13,000,000–€26,000,000 | 27% | 40% | 50% |
| More than €26,000,000 | 30% | 43% | 50 % |
Tax Exemptions
At Schlun & Elseven Rechtsanwälte, our lawyers advise clients on approaches they can take to legally avoid paying taxes on such gifts. Under German inheritance tax law, the transfer of the family home to the spouse is tax-exempt in the case that it is located in the European Union (EU) or European Economic Area (EAA); and the spouse uses it as their principal home.
Further exemptions apply to gifts that were made on a certain occasion as no tax is levied on occasional gifts. Such gifts can include those made at weddings, birthdays and anniversaries. However, the gifts must be deemed appropriate to the occasion in question. These are just some examples of what is seen as an occasional gift as there is no set rule regarding the type of donation that is included.
Business asset donations can also be granted significant tax benefits, especially when they are transferred to non-family members. However, to benefit most from these exemptions, it is best advised to consult with a legal professional, as the area of business succession planning is a complex legal matter. The transfer of business assets can raise questions regarding other tax matters, such as income tax, and cause other changes within the business structure and for the heir.
German Inheritance Law: Specialised Legal Advice
If you are looking for insightful legal advice in the area of German inheritance law, please do not hesitate to contact us. Our lawyers will oversee all the legal requirements for your inheritance case, whether you are a testator or an heir. At Schlun & Elseven Rechtsanwälte, our team is ready to advise you on issues relating to international inheritance cases, and to guide you through the complexities of German inheritance law.
