Regardless of whether it is an inheritance, a gift, or a gratuitous gift between spouses – as the donor or the gifted person, you should always bear the tax aspect in mind. For example, recipients or heirs should consider the German gift/inheritance tax that may be due when deciding whether to accept the gift. However, with the right advice, the donor or testator can minimise the amount of tax payable even before the assets are transferred. Gifts offer several tax advantages in Germany that you should be aware of as the donor or the gifted person.
Schlun & Elseven Rechtsanwälte offers skilled and committed legal assistance to help our clients clarify the tax aspects of a gift in Germany. Whether it is the transfer of a gifted property, the donation of company shares, or the preparation of your tax return, as a German full-service law firm, we are always at your disposal to ensure that your rights and interests are always protected. We look forward to working with you.
Legal and Tax Aspects of a Gift in Germany
By making a gift, one person enriches another from their assets. The parties (donor and gifted person) agree that the gift is made free of charge (see Section 516 (1) of the German Civil Code, BGB). Accordingly, the donor undertakes to permanently transfer an item to the other party’s assets without receiving anything in return from the gifted person. What exactly falls under the term “gift” (inter vivos) in German tax law is set out in Section 7 of the German Inheritance and Gift Tax Act (ErbStG).
Gratuitous Gifts between Spouses
“Gratuitous gifts between spouses” must be differentiated from other forms of “gifts.” Although “gratuitous gifts” also initially appear to be a gift in accordance with Section 516 (1) BGB, the German Federal Court of Justice assumes that gifts between spouses are not a gift. This is due to the idea that it is assumed that these marriage-related or gratuitous gifts are made for the sake of the marriage. Therefore, the decisive difference is the motivation or purpose of the gift.
Regardless of the different legal categorisation of the classic gift by Section 516 (1) BGB and the gratuitous gift between spouses, the latter is treated as a gift for tax and inheritance law purposes in Germany. If you have any questions about gifts in general or about gratuitous gifts between spouses, please do not hesitate to contact our lawyers. Depending on which legal issues need to be discussed in your case, one of our experts from the legal team for German tax law or the practice group for German inheritance law will be your ideal partner.
Inheritance or Gift – Tax Differences in Germany
In the case of an inheritance, the deceased’s assets are transferred to their heirs. Like a gift, this transfer is free of charge. The difference between the two processes is that inheritance only takes place after the death of a person, whereas a gift can be made during their lifetime. It is, therefore, possible to transfer part of one’s assets to relatives before death without having them included in the inheritance.
People often make gifts before they pass away to take advantage of the tax benefits compared to inheritance. This is mainly because the tax-free amount applicable to the gift in Germany can be reused every ten years. This means the allowance can be used again after the mentioned period. The gift also has the advantage that the tax levied in such cases is lower than the inheritance tax.
Amount of German Gift Tax
In addition to the advantages of gift tax being lower than inheritance tax and the tax-free amount for gifts being renewed every ten years, there is also the possibility of tax exemption. This depends on the individual case and may, for example, apply to gifts between spouses. The decisive factors are, therefore, the parties making the gift and the object of the gift.
When gift tax is due, the first question is how much is due and how it is calculated. Inheritance tax depends on two aspects: the degree of kinship of the deceased to the heir and the amount of the inheritance. The situation is similar for gifts in Germany. Here, the amount of tax depends on the following circumstances:
- Relationship of the donor to the gifted person,
- value/amount of the gift,
- tax-free amount,
- tax class.
Depending on the personal relationship between the donor and the gifted person or acquirer, the tax class of the persons concerned can be determined. This is then based on the categories set out in Section 15 ErbStG:
- Tax class I: Spouses and civil partners, children, and stepchildren as well as their descendants, parents, and grandparents.
- Tax class II: Siblings and their descendants, stepparents, children-in-law and parents-in-law, divorced spouses, and partners in a dissolved civil partnership and, if applicable, parents and grandparents.
- Tax class III: Other acquirers and special-purpose beneficiaries.
Tax Exemption and Other Benefits
Depending on the tax class of the person concerned, they are entitled to a tax-free allowance. According to Section 16 ErbStG, the acquisition remains tax-free in the following cases of unlimited tax liability:
- Spouses and civil partners: €500,000,
- children and children’s children (if the parents are deceased): 400.000 €,
- grandchildren: €200,000,
- all other persons who are assigned to tax class II or III: 20.000 €.
Therefore, the amount of the tax-free allowance in Germany depends on the tax class and the personal relationship between the donor and the gifted person/acquirer. In principle, the closer the relationship between the parties concerned, the higher the tax-free amount. In addition, the exceptions set out in Section 13 ErbStG, which guarantee tax exemption, must be observed. This is particularly relevant for gifts of real estate.
Gifts of Real Estate in Germany
Gifts of property and shares in a company are generally of particularly high value. There are also tax law differences between the gift of a property and the receipt of a property as an inheritance. While, under certain circumstances, heirs who belong to tax class I are entitled to a tax exemption for the residential property last used by the deceased and a tax concession for rented property (see Section 13d ErbStG), the gift of property offers a further tax advantage.
The advantages mentioned for inheritances per Section 13 (1) No. 4b ErbStG are also provided for in the case of gifts. However, a decisive condition for tax exemption is not required here: the person concerned does not have to live in the property themselves for a rental period of 10 years. However, this advantage is only available to spouses who transfer the family home during their lifetime (see Section 13 (1) No. 4a ErbStG).
The lawyers at Schlun & Elseven Rechtsanwälte will be happy to explain the circumstances under which a tax exemption would still be possible in Germany and support you in taking the necessary steps to ensure that all formal requirements are met.
Practice Group: German Tax Law
Practice Group:
German Tax Law
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