Calculation, explanation, avoidance
Gifts are an important instrument of business succession and also of private asset succession. Gifts without consideration are generally subject to gift tax. Tax rates, allowances and benefits depend on the relationship between the parties involved and the type of assets given away (real estate, business assets, other). This opens up an enormous tax saving potential through prudent structuring. When business assets are donated (e.g. due to a business split), the income tax must always be taken into account.
You can find detailed information on inheritance tax in the case of acquisition due to death here: Inheritance tax
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Services of lawyers and tax consultants in the area of gift tax
Specialized attorneys for german tax law and specialized tax advisors provide comprehensive support to clients in all questions relating to gift tax:
- Tax-optimized structuring of gifts (real estate, business assets, other)
- Gift tax calculations
- Preparation of gift tax returns
- Representation vis-à-vis the tax offices and tax courts, in particular in the event of objections and legal action against the gift tax assessment
- Development and implementation of long-term tax avoidance strategies for family generational change
- Valuation of real estate for the gift tax
- Valuation of companies for the gift tax
- Advice on the allowances for gift tax
Due to numerous points of contact with related fields of law, the lawyer for tax law on donations often works together with lawyers for inheritance law, corporate law, family law and real estate law.
Which donations are subject to gift tax?
The German Inheritance and Gift Tax Act (ErStG) recognizes various taxable gifts. Here are some important ones:
- The classic gift in the sense of a generous donation without consideration among the living
- The payment of a compensation for a renunciation of inheritance, waiver of a compulsory portion or a legacy
- The endowment of a foundation with assets through a foundation transaction
- The enrichment of a spouse on the basis of a community of property agreement
In addition, the law recognizes a number of other transactions subject to gift tax that are not always recognizable as such for the layperson concerned. These are, for example, interest-free loans or the joint account of spouses.
Tax rates and allowances for gift tax
The tax burden in the case of gift tax in Germany depends very much on the personal relationship between the donor and the presentee. Here is an overview for the individual presentee:
- Spouses and registered partners: Tax class I, tax rate: 7-30 percent, tax-free amount: 500,000 euros
- Children and stepchildren: Tax class I, tax rate: 7-30 percent, tax-free amount: 400,000 euros
- Grandchildren: tax class I, tax rate: 7-30 percent, tax-free amount: 200,000 euros
- Parents: tax class II, tax rate: 15-43 percent, tax-free amount: 20,000 euros
- Siblings, nephews, nieces: Tax class II, tax rate: 15-43 percent, tax allowance: 20,000 euros
- Children-in-law: tax class II, tax rate: allowance: 20,000 Euro
- Life partners, friends, business partners etc.: Tax class III, tax rate: 30-50 percent, tax allowance: 20,000 Euro
The correct use of gift tax allowances in Germany
According to § 14 ErbStG, the tax-free amounts of the gift tax are fully available every 10 years. In the case of gifts, for example from parents to children, the tax-free amount applies to each parent in relation to each child. For example, every 10 years parents can transfer a total of 1.6 million euros tax-free to two children. In many cases, an optimal distribution of assets between the spouses has to be ensured first of all by means of structuring.
A particularly effective instrument for optimizing inheritance tax is the so-called family pool, for example as a property management company. In this case, company shares can be transferred specifically for gift tax purposes.
The gift of real estate - tax relief and scope for valuation
Houses, condominiums and other real estate often form the core of private family wealth. From a german gift tax point of view, there are some special features that apply here, which can be used both in the structuring of gifts and in the gift tax return.
Of particular importance in practice are the tax-free gift of the family home as well as the valuation discount for the gift of rented residential property and the deductible usufruct.
Tax exemptions for business assets - savings potential for company or share gifts
The german Inheritance and Gift Tax Act provides very substantial tax benefits for the donation of business assets. The generous tax exemptions for company successors have already been the subject of constitutional review on several occasions and have thus become increasingly complex.
Those affected should not be irritated by this and continue to make targeted use of the benefits for business assets. This applies in particular to donations to distant relatives or non-family members. In such cases, the donation of favored business assets is often the only way to reduce inheritance tax due to the otherwise high tax rates and low tax allowances. Since the legislator has cashed the so-called Cash-GmbH, however, the arbitrary conversion of private assets into favored business assets is no longer possible.
The optimized business succession, which is oriented towards the pension interests of the transferring generation, raises a variety of complex questions and approaches to solutions, not only in terms of gift tax but also in terms of income tax and the legal protection of the transferor. Our team of lawyers and tax advisors specializing in company successions will show solutions and tax optimization.
Duty to notify the gift and gift tax return
How does the tax office find out about the donation? In the case of a gift of real estate or shares in a limited liability company, the german notary's office entrusted with the notarization of the transfer is already notified.
In addition, the Inheritance and Gift Tax Act stipulates a duty to notify for all acquisitions subject to gift tax. This obligation applies to both the donee and the donor and must be fulfilled within three months. However, there is no general tax declaration obligation - as with other types of tax - in the case of gift tax.
If the tax office becomes aware of the gift in this way, it can demand a gift tax return. The failure to report a gift is not a criminal offence in itself. However, if the gift tax is set too low in the inheritance tax due to the failure to report the gift or due to incorrect or incomplete information in the inheritance tax, the offence of tax evasion is basically fulfilled. We regularly advise on self-disclosure in cases of evasion of gift tax.
Beware of gifts!
Often the desire to save taxes is the reason and the main motivation for a gift. However, as with other transactions, the tax side of free gifts should not be the only consideration. After all, gifts always have legal and economic consequences. Among the (often undesirable) side effects of a gift are
- Deterioration of the donor's pension situation
- Loss of control in the company (when shares are granted)
- Effects of the gift on the right of inheritance and the right to a compulsory portion for relatives
- Consideration of the grant in case of divorce
The legal risks mentioned above must s be analyzed in detail in the run-up to the gift and must be excluded or limited by accompanying measures and arrangements in the gift contract.
These include in particular rights of revocation for the donor, the agreement of a usufruct or right of residence, or the order of crediting to the compulsory portion.
Gifts in tax class II and III
Especially in the case of gifts in Germany to recipients in tax classes II and III with low tax allowances and high tax rates, consideration should be given to tax optimization at an early stage. In addition to the transfer of preferential business assets, "extreme" arrangements such as adult adaptation or marriage are also possible.
However, the above-mentioned civil law and economic side effects of the gift should always be taken into account.