The amount of the gift tax depends on the value of the gift and the relationship between the donor and the recipient. WIRUL KENGTHANKAN/Getty Images
Gifts inter vivos are legally treated in a similar way to an inheritance and are also subject to taxation.
The amount of gift tax depends on the value of the gift and the relationship between the donor and the recipient.
The closer the parties are related to each other, the higher the exemption. But there are also tricks to save taxes on the donation.
Everyone likes to receive gifts – be it for a birthday, Christmas or an anniversary. They show us that other people care about us and can put a smile on our faces even on bad days. Even greater when the gift is a fortune. In the case of such a donation, there are a few things to consider. You can find out here how high the taxes for gifts are and which allowances apply.
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What is a gift?
According to the Civil Code (BGB) a benefit in which someone enriches another person from their property. Both parties agree that the donation is free of charge.
Donations between living persons are treated similarly to an inheritance. The legal basis for this is the Inheritance Tax and Gift Tax Act (Inheritance Tax Act). It also lists which transactions are considered taxable gifts. These include above all:
Generous donations among the living without anything in return – i.e. classic donations Compensation payments that are paid for a waiver of inheritance The assets to equip a foundation through an endowment transaction The enrichment of a spouse or partner based on the agreement of a community of property
However, the law also defines other processes as gifts that are not recognizable as such at first glance. For example, the departure of a shareholder from a company can also constitute a gift under tax law.
What are the gift tax exemptions?
In principle, the recipient only has to pay gift tax if the value of the gift exceeds the tax-free allowance. The amount of the allowance depends on the family relationship between the donor and the recipient.
Depending on the degree of relationship, a different tax class applies to the gift tax. However, this tax class has nothing to do with your income tax. The more closely related the two parties are, the lower the tax bracket and the higher the allowance. These allowances and tax brackets currently apply according to Inheritance Tax Act:
degree of relationshipallowancetax classSpouse or registered partner EUR 500,000 I Children and stepchildren EUR 400,000 I Grandchildren whose parents have already died EUR 400,000 I Grandchildren whose parents are still alive EUR 200,000 I Great-grandchildren EUR 100,000 I Parents and grandparents EUR 20,000 II Siblings and children of siblings EUR 20,000 II Stepparents EUR 20,000 II Sw ower children and parents-in-law20. 000 euros II Divorced spouse or partner in a dissolved civil partnership 20,000 euros II All others (e.g. friends or cousins) 20,000 euros III
The important thing about the tax exempt amounts is that you only have to pay tax on the part of the gift that is above the tax exempt amount. For example, if your sister transfers you 30,000 euros and the allowance is 20,000 euros, you only have to pay taxes on the difference of 10,000 euros.
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How much is the gift tax?
The amount of the gift tax depends on the value of the gift and the tax class of the donor. In the Inheritance Tax Act the following tax rates are currently set:
Value of the giftTax class ITax class IITax class IIIup to and including EUR 75,0007 percent15 percent30 percentup to and including EUR300,00011 percent20 percent30 percentup to and including EUR600,00015 percent25 percent30 percentup to and including EUR6,000,00019 percent30 percent30 percentup to and including EUR13,000,00023 percent35 percent50 percentup to and including 26 000,000 euros27 percent40 percent50 percentover 26,000. 000 euros30 percent43 percent50 percent
The closer the donor and recipient are related to each other, the lower the gift tax. The amounts apply minus the respective allowances.
How can you save taxes on donations?
The easiest way to save on gift tax is to spread the gift over several years. The exemptions apply for a period of ten years. At the end of the ten years, you can use the applicable exemption amount again. In order to save taxes, you have to start giving early.
If your father wants to give you 800,000 euros, he can give you 400,000 euros first. According to the table with the allowances, there are no taxes on this amount of money. Ten years later, he can give you the remaining 400,000 euros tax-free. But if your father gives you the 800,000 euros all at once, you, as the recipient, would have to pay a tax of 15 percent on half of the amount – a total of 60,000 euros.
Another method: the chain gift
Another common way to save on taxes is by chain gifting. You can take advantage of the different tax allowances depending on the degree of relationship.
Your grandmother wants to give you 400,000 euros. In the case of a direct donation, you as the recipient would have to pay taxes of 22,000 euros. After all, the allowance for this degree of relationship is only 200,000 euros. Instead, your grandmother can give the 400,000 euros to your mother, her own daughter. Because of the higher tax-free allowance, no taxes are due on this gift. Your mother can then give the sum to you as a tax-free gift.
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Is every donation reportable?
Basically, you have to report every inheritance and donation to the tax office. This also applies if the gift is below the tax-free allowance.
When you receive the assets, you have one for displaying a donation among the living period of three months. Both the recipient and the donor must inform the tax office. An informal letter is sufficient for this. However, it should contain all the important information about the donation. These include:
First and last name, tax identification number, profession and address of the donor and recipient Time of the gift Subject and value of the gift Degree of relationship
You can find a template for displaying a donation, for example here.