Gift Tax (Schenkung­steuer)

According to § 30 ErbStG, the completed gift must be reported to the competent tax office within three months, both by the donor and the person receiving the gift. The only exception to this is if the gift was notarised by a notary, for example in the case of the transfer of shares in a limited liability company or of real estate. Here, the notary is obliged to notify the tax office of the gift.

The notification of a gift can initially be submitted informally to the competent tax authority with the following information:

Name and full address of the parties involved
Date of the gift
Value and object of the gift
Degree of relationship
Date and value of any previous gifts from the same donor.

It is important to note that false information can constitute tax evasion, and also that assets located abroad - for example, real estate - are subject to gift tax in Germany.

After notification of the gift, the tax office may demand a gift tax declaration, although as a rule only the donee is required to do so. It must then be submitted in any case, even if the donee is of the opinion that gift tax is not due. The authority has the power to decide on this step.

German tax authorities distinguish between three types of gifts:

1. the gift by hand
2. the promise to make a gift
3. the gift in the event of death

In the case of a gift by hand within the meaning of § 516 BGB, the donee can immediately dispose of the asset, unless it is real estate. A promise of gift is based on a contract notarised by a notary public pursuant to section 518 (1) BGB. A gift on death is also a gift promise, but is only honoured by the donee after the death of the donor.

This is probably the most important point for anyone who is to make a gift or receive a large sum of money or real estate in the near future. However, dealing with gift tax can also be interesting for testators and heirs. The decisive factor for the amount of tax is first of all the relationship between the parties involved, because the tax class depends on this.

Gift tax law recognises three tax classes, which are defined in § 15 ErbStG. Tax class I is the one with the lowest tax rates and highest allowances, tax class III the one with the least favourable conditions.

If the gift is as high as the respective tax-free amount, no gift tax has to be paid. For example, if the father gives a daughter 400,000 euros, she does not have to pay gift tax because her tax-free amount is the same.

One difference to inheritance tax is that the tax-free amount cannot be used only once, but every ten years. This makes it possible, for example, to pay out an inheritance in the form of several gifts by making gifts at an early stage, so that less inheritance tax is payable in the event of a later death.

A third variant to save gift tax is the so-called chain gift. For example, if a mother wants to give her son 800,000 euros, he can claim 400,000 euros as an allowance, but must pay tax on the remaining 400,000 euros. At a tax rate of 11%, that would be a total of 44,000 euros, leaving 756,000 euros of the 800,000 euros.

Instead, the mother could give her son and her spouse 400,000 euros each. Both sums fall under the tax-free amounts. The father then gives his son 400,000 euros. For this, the son would not have to pay gift tax and would receive the entire 800,000 euros tax-free.

If a property is inherited, inheritance tax is due according to its value. This can be avoided if the property is given away to the spouse or registered partner during one's lifetime. However, the condition is that the condominium or the house is lived in and represents the so-called centre of life. In this case, the property may also be located in another member state of the EU or the European Economic Area (EEA).

Value and size are irrelevant. Even the gift of a luxurious villa costing several million with a huge plot of land is not subject to tax. The personal allowance under the Inheritance Tax Act is not affected by this. The ten-year residential obligation that exists when inheriting an owner-occupied house also does not apply. The donee can therefore sell the property at any time.

The Federal Fiscal Court has also ruled on this subject that only the date of the gift is decisive and not the date of acquisition of the property. A marriage or registered civil partnership does not have to have existed beforehand. Equally irrelevant is how long the property has already served as the spouses' home. It only has to serve as the centre of life on the date of the gift. There are therefore no lock-up periods in the event of a sale or a subsequent change of use. This procedure is also not limited to one property.

For the donor, however, it makes sense to include certain revocation clauses in the gift contract in case the donee does not behave as previously agreed in the future. In that case, the gift can be reversed. A lifelong right of residence or other usufruct can be stipulated in a notarised deed of gift.