Taxation on gifts from family

49 posts in this topic

Hi,

 

Does anyone know what taxation factors one should consider when receiving financial gifts from relatives abroad?

Specifically, a grandparent in another EU country who wishes to send their grandchild in Germany funds for future higher education.

 

- Is there an amount the grandchild can receive free of tax?

- Would the tax free amount be any better/higher if the grandparent were to send the funds to their child, for safe keeping, rather than their grandchild?

 

Grateful for any insights!

 

Thank you,

Joe

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Thank you PandaMunich!

 

That's pretty high. Out of interest, is that per YEAR, or over a ten year period? I checked the website you referenced but couldn't quite work that out.

 

Thanks again!

Joe

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Hi Panda,

 

How can one mention that the money is sent as gift if by wire transferring money.

 

Is it enough to write a transfer note as gift money to children?

 

Thanks

ML

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Yes, simply tell the grandparent to write as the subject of the wire transfer (the alternatives below are for a present from grandma/grandpa to granddaughter/grandson):

 


  • Geschenk von Oma/Opa <insert name of grandparent> an Enkelin/Enkel <insert name of granddaughter/grandson>

 

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One more related question, regarding inheritance tax on property inherited by children.

I read that:

If children inherit the family home (smaller than 200 square meters), it is tax exempt, if the beneficiary uses the family home for his or her own purposes for a period of 10 years after the death of the deceased.

What is the situation if the children are the beneficiaries i.e. they inherit the property, but the surviving spouse continues to use the home, i.e. the children live elsewhere.

I assume the key factor is that the home must not be sold by the children for a period of 10 years. Correct? They do not actually need to move into the home themselves, if the surviving spouse continues to live there for at least 10 years.

Correct?

Thanks, Joe

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I think it depends on the value of the total inheritance; children can inherit in total 400,000 tax free each from whatever source and don't have to live in the property for any specified time. For spouses or officially recognised partners it's 500,000. That's what I understand but am willing to be corrected!

I don't know if the 10 year rule still applies as a way of escaping tax if the inheritance is more than that; I think the law has fairly recently changed.

 

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Ok thanks Feierabend.

Are you really sure that the family property is included in the 400,000 tax free inheritance for children? Even if the property remains used by the spouse??

Thanks,

Joe

 

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Is this money/inheritance originating in Germany?  Because if it was say, from the UK, it would be affected by UK inheritance/gift tax, which is less geneorus than the German.

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Thanks snowingagain. I'm still unclear though whether family property is included in Germany's 400,000 tax free inheritance for children? Even if the property remains used by the spouse.

I'd be grateful if someone could advise. 

Thanks,

Joe

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Yes, it is. If the usufruct of the spouse had been contractually agreed on, the value of it would be deducted when establishing the basis for taxation.

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Thanks jeba.

I've tried to find some concrete information on this. Could anyone please point me to a document specifically stating that children inheriting the family home need to deduct the value of the family home from their 400,000 EUR tax free amount?

The information I've found simply states that the transfer of an owner-occupied family home to descendants (children) is completely tax free. There is no mention that the value of the property counts towards the 400,000 EUR tax free amount for immediate descendants.

Thanks,

Joe

e.g.

The transfer of an owner-occupied residential property (family home) between spouses or civil partners, as well as to descendants, may be completely free of tax...The transfer of the family home to spouses, civil partners, as well as to descendants upon death, is also free of tax, but only if the heir uses the family home for the following ten years as his or her main residence. In case of a transfer upon death to descendants, there is a 200-square metre size limit. - See more at: http://www.step.org/reform-german-inheritance-and-gift-tax-law#sthash.ky8rRzHx.dpuf

 

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Here is an article which might clarify

http://www.immoverkauf24.de/immobilienverkauf/haus-erben/erbschaftssteuer/

I think it's clear that the value of the house is taxable, unless the 10 year rule is followed, and the children must move in to avoid it.

 The value of the house is calculated using the Verkehrswert, which is decided by the Finanzamt. This is somewhat a notional figure, which may be higher than the actual current value. If you think the value is lower, due to say, the local market, the condition of the house etc, you have to arrange a direct valuation by a Gutachter. The tax free allowance, being quite generous, means that relatively few fall into inheritance tax bracket, as opposed to the UK for example where the estate is taxed and if you own a shed in London you're probably in for it! Also, the amount due depends on your tax bracket, not some general percent. 

This is just my general understanding from bits and pieces I've read and you should really get professional advice if the position is complicated.

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If the parent had lived (no business use allowed) until his/her death in the German/EU house (or couldn't because of an important reason, e.g. the parent was in a nursing home) and the house has at the most a living space of 200m² and the child (or grandchild if the child predeceased the parent) lives (no business use allowedin the house immediately after inheriting it (or if the child has a serious valid reason why he cannot live in it, e.g. if his job is in another city) for at least 10 years then the inherited house is exempted from German inheritance tax.

This is laid down in §13 Absatz 4c Erbschaftsteuergesetz:
"4c. der Erwerb von Todes wegen des Eigentums oder Miteigentums an einem im Inland oder in einem Mitgliedstaat der Europäischen Union oder einem Staat des Europäischen Wirtschaftsraums belegenen bebauten Grundstück im Sinne des § 181 Abs. 1 Nr. 1 bis 5 des Bewertungsgesetzes durch Kinder im Sinne der Steuerklasse I Nr. 2 und der Kinder verstorbener Kinder im Sinne der Steuerklasse I Nr. 2, soweit der Erblasser darin bis zum Erbfall eine Wohnung zu eigenen Wohnzwecken genutzt hat oder bei der er aus zwingenden Gründen an einer Selbstnutzung zu eigenen Wohnzwecken gehindert war, die beim Erwerber unverzüglich zur Selbstnutzung zu eigenen Wohnzwecken bestimmt ist (Familienheim) und soweit die Wohnfläche der Wohnung 200 Quadratmeter nicht übersteigt. "

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Thank you very much for the clarification Panda Munich - very helpful!

In such a case, I assume the exemption from German inheritance tax for the property would not in any way impact the additional exemption of up to 400,000 EUR. i.e. The child could in theory inherit the family property, plus up to 400,000 EUR. Correct?

Many thanks again!

Joe

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