Taxation on gifts from family

108 posts in this topic

Many thanks PandaMunich!

I'm also now reading up on the situation regarding securities such as shares owned by the deceased, and inherited by the child of the deceased. I've read that a time limit of one year applies from the date the shares were acquired. i.e. If the child waits for longer than 1 year from the date of acquisition, then the sale of those inherited shares would be free of inheritance tax, income tax and capital gains tax. 

Could anyone please advise whether this is correct? 

Thank you!

Joe

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Sorry, but that only applies to shares that were bought in 2008 or before, and only for capital gains tax (which is a form of income tax), i.e. when you inherit such an old depot of shares then you won't have to pay Abgeltungsteuer (25%) and Solidaritätszuschlag (in total 26.375%) on the profit once you sell them, i.e. on the difference between selling price and the price at which your parent had bought these shares.

But you will have to pay inheritance tax on these shares when you inherit in total assets worth more than the tax free amount of 400,000€, the shares will be considered with the value that they had on the day that your parent died.

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Ok understood - thank you.

Does it make any difference if the deceased lived and acquired the shares outside of Germany, in another EU country?

Thanks,

Joe

 

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None, as long as that country doesn't have a separate double taxation agreement about inheritance tax with Germany, the regulations in that would take precedence.

As far as I know, Germany only has  double taxation agreements about inheritance (= Erbschaft) tax with the following countries (you can check for yourself here):

  • Austria
  • Denmark
  • France
  • Greece
  • Liechtenstein
  • Switzerland
  • USA
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Hi all, my parents will send me money as a gift / loan from another EU country to Germany for helping me buy a flat. As I understand, sums up to 400.000 EUR are not taxed in this case and don't have to be reported to the authorities - is that true? Anyone has experience with this kind of transfers?

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10 hours ago, PandaMunich said:

True, it's laid down in §16 Absatz 1 Nr. 2 ErbStG.

 

Thanks Panda!  Is there anything we need to be careful about when transferring the money? We plan to transfer it directly to the seller's account with a note that they are ''borrowing me the money to buy a flat''. Or would it be better if they transfer it to my account in Germany first and then pay everything from there? Any other suggestions?

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It would be better if they transfer the money to your account, with a subject like "Geschenk (or if it's a loan: Darlehen) für Wohnungskauf <insert address of flat>".

You then transfer the whole amount to the seller as soon as the Notar tells you to.

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Hi Panda,

I have a followup question. My mother abroad wants to send me some money as gift as I am buying some property here in germany. Does it make any difference if i transfer small amounts of lets say 10k EUR 3-4 times? The problem is that above 10k EUR the amount gets flagged by authorities in my country, and i want to bring over 40k EUR (well below 400k limit). Thanks in advance..

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No difference, just take care that the total within 10 years is not allowed to exceed 400,000€, or you will have to pay gift tax.

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Hi, my grandmother wants to gift me a property. Both grandmother and property are in another EU country, where gifts from relatives are tax exempt. I am a tax resident in Germany from this year. Would a property count towards 200,000 tax-free allowance of a gift from grandparent?

 

I have also read that from 2015 foreigners from EU countries can choose to use inheritance tax regime of their own country for their estate (an option that I am considering), in which case I may not be subject to these allowances when I receive gifts and inheritance from relatives. This bit is quite confusing. Does anybody know anything about it?

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29 minutes ago, Hulie said:

Would a property count towards 200,000 tax-free allowance of a gift from grandparent?

 

Yes.

But a clock starts running, if your grandmother dies more than 10 years after she gave you the property, you get a new 200,000€ allowance, i.e. after 10 years the law "forgets" about the old gift.

 

29 minutes ago, Hulie said:

I have also read that from 2015 foreigners from EU countries can choose to use inheritance tax regime of their own country for their estate (an option that I am considering), in which case I may not be subject to these allowances when I receive gifts and inheritance from relatives. This bit is quite confusing. Does anybody know anything about it?

 

You didn't understand correctly, you are still subject to German gift and inheritance tax laws, see here:

  • Erbschafts- und Schenkungssteuer werden weiterhin erhoben

    Keinerlei Änderungen gibt es hinsichtlich Erbschafts- oder Schenkungssteuer: «Sie werden weiterhin erhoben wie bisher», erklärt der Rechtsanwalt Daniel Lehmann vom Deutschen Anwaltverein (DAV). 

So these allowances still apply to you.

 

What the new EU regulation 650/2012: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:201:0107:0134:EN:PDF

says is something else.

It says that if a person is resident in another EU country, and he then dies (without having explicitly left a last will saying that the rules of his homeland should apply!), the rules of his country of residence apply to his whole estate, wherever it was located within the EU.

 

For example, under Swedish inheritance law, you're allowed to disinherit your children.

If a Swede who is resident in Germany and who owns property everywhere in the EU including in Sweden then dies and leaves a last will in which he disinherits his children and leaves everything to his new golddigger wife, then this last will will not be adhered to, unless he explicitly said in it that he wanted Swedish inheritance rules to be applied. Without that explicit clause in the last will, since the Swede was resident in Germany, German inheritance rules apply to his entire estate, and under German rules you are not allowed to disinherit your children, they always get at least half of what their share would be if that parent had died without a will, see §2303 BGB.

So the children will get an inheritance from their father even though he had thought he had disinherited them.

 

It says in article 23 of the EU regulation 650/2012 to what facets (and only to those facets!) of an inheritance this new law applies:

 

2. That law shall govern in particular:

  • (a) the causes, time and place of the opening of the succession;
  • (b.) the determination of the beneficiaries, of their respective shares and of the obligations which may be imposed on them by the deceased, and the determination of other succession rights, including the succession rights of the surviving spouse or partner;
  • (c) the capacity to inherit;
  • (d) disinheritance and disqualification by conduct;
  • (e) the transfer to the heirs and, as the case may be, to the legatees of the assets, rights and obligations forming part of the estate, including the conditions and effects of the acceptance or waiver of the succession or of a legacy;
  • (f) the powers of the heirs, the executors of the wills and other administrators of the estate, in particular as regards the sale of property and the payment of creditors, without prejudice to the powers referred to in Article 29(2) and (3);
  • (g) liability for the debts under the succession; (h) the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death as well as claims which persons close to the deceased may have against the estate or the heirs;
  • (i) any obligation to restore or account for gifts, advancements or legacies when determining the shares of the different beneficiaries; and
  • (j) the sharing-out of the estate.
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Thanks for the clarification! @Panda Do you know, if the property is sold earlier than 10 years from gift act, would I be taxed a capital gains tax & on which amount - the difference between declared value and actual sales price? It is not a primary residence for anyone.

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Please read:

The profit, which would be calculated as:

  • selling price - price your grandmother paid for the property (you "inherit" her buying price)

will not be taxed by Germany (but by Lithuania) and is Progressionseinkommen, i.e. it will drive up your German income tax rate on your German income.

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Thanks PandaMunich for the great community service, I find your answers far better than Tax consultants'!

 

I would really appreciate your help, last month my parents who live in a non-EU country sent me in chunks an amount little more than 4,00,000 EUR to invest in Germany (financial instruments and cryptos), now I got a letter from my German bank to explain these foreign inward remittances and specifically need signed declaration if my parents sent this money as a gift OR to invest in Germany on their behalf. Based on discussions in this thread I think if I declare it as gift then any amount above 4,00,000 will be taxed at 10% (meaning if it's 4,50,000 then tax is 10% of 50,000 ?). 

 

Can you please enlighten me about:
1. Tax implications if I declare it as if I am investing on behalf of my parents, in this case do I need to show after some years that I actually returned money to them?
2. Is this limit of 4,00,000 per person OR per family (if money comes in my wife's account then is it another 4,00,000?)?
3. Is money sent to Parents adjusted against this limit and if yes then within timeframe of 10 years?, if yes does it mean I need to pay tax now and get refund later when I return?, one usecase being me sending them money in last many years to support them and now they returning back money, also does receiving/sending money from multiple bank accounts makes any difference?
4. Is this limit counted for ANY money received as gift doesn't matter if sender is relative or not?, What happens in case my sister sends me money as gift or investing on her behalf?
5. Is Bank authorised to ask me this declaration or is it just my responsibility to declare in Tax filings, will Bank report my declaration to Tax authorities to enable them to match with my tax filings?

 

Thanks in advance, sorry for long list of questions some of which might already be covered. I am not sure if filing taxes intelligently is counted under Tax evasion :)

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Sorry for so many Zeros and Commas :) , I don't see any Edit option (was there only for few minutes or am I too dumb), must have represented 4,00,000 with something like "Max limit".

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2 hours ago, fraufruit said:

Your questions might be easier to answer if you would sort out your zeros and commas. Just hit the edit button.

 

It's their Indian numbering system: https://en.wikipedia.org/wiki/Indian_numbering_system

 

3 hours ago, dbinmunich said:

last month my parents who live in a non-EU country sent me in chunks an amount little more than 4,00,000 EUR to invest in Germany (financial instruments and cryptos), now I got a letter from my German bank to explain these foreign inward remittances and specifically need signed declaration if my parents sent this money as a gift OR to invest in Germany on their behalf.

 

There is a third possibility: they could have loaned you the amount.

 

3 hours ago, dbinmunich said:

Based on discussions in this thread I think if I declare it as gift then any amount above 4,00,000 will be taxed at 10% (meaning if it's 4,50,000 then tax is 10% of 50,000 ?

 

No, 7%, i.e. 0.07*50,000€ = 3,500€ since a child is in gift tax class I, see §15 ErbStG in conjunction with §19 ErbstG.

 

 

Gift tax calculator: https://www.smart-rechner.de/schenkungssteuer/rechner.php

 

5a5771f877e9e_2018-01-1115_16_32-Start.p

 

And anyway, each parent is allowed to gift you up to 400,000€ gift-tax-free (see §16 ErbStG), so as long as the money wasn't sent from a bank account that is just in one parent's name, you wouldn't owe any gift tax at all, since you're still under 800,000€.

 

3 hours ago, dbinmunich said:

1. Tax implications if I declare it as if I am investing on behalf of my parents, in this case do I need to show after some years that I actually returned money to them?

 

This is trick question: the money would have to be in a German bank account that is in their name in order to be considered theirs...

A bank is not allowed to let somebody receive money for somebody else, there is money laundering legislation (= Geldwäschegesetz) in place that forces banks to check you don't receive money for somebody else: http://de.etc.finanz.banken-broker.narkive.com/i7OwWRU8/ich-handele-auf-eigene-rechnung-was-heiszt-das

 

For example, when you open a bank account, one of the standard statements you have to affirm (otherwise they won't let you open the account) is "Ich handele auf eigene Rechnung" (= "I am acting only in my own name"), i.e. you promise never to receive somebody else's money in your bank return.

 

Tax-wise, you cannot invest on behalf of your parents unless they have been declared legally incompetent, e.g. because of dementia, and even then you have to submit separate income tax returns for them every year in which you declare their profits from these investments, i.e. the tax returns are in their names, you just get to sign them.

This is the same procedure that parents with minor children who invest their children's money have to observe.

 

3 hours ago, dbinmunich said:

2. Is this limit of 4,00,000 per person OR per family (if money comes in my wife's account then is it another 4,00,000?)?

 

You or your siblings are the only ones who can get 400,000€ gift-tax-free from each of your parents.

 

Be very careful, your wife, who is your parents' daughter-in-law is considered under gift&inheritance tax laws as someone who is completely unrelated, i.e. who has only a 20,000€ gift-tax-free allowance. If one of your parents gifted her 400,000€, she would owe 95,000€ in gift.
Just enter 400000 into the gift tax calculator, changing the relationship to "Schwiegertochter oder -sohn".

Details in: http://www.hilbert-simon.de/newsleser/items/steuerguenstige-schenkung-an-schwiegersohn.html

 

3 hours ago, dbinmunich said:

3. Is money sent to Parents adjusted against this limit

 

No, if you gift the money back to your parents ("son" --> "parent"), we have a whole new tax event, which is again subject to gift tax.

And the gift-tax-free amount from a living child to a parent is only 20,000€. The gift tax class for this event is II.

--> by giving 400,000€ back to a parent, you would have to pay 25% * (400,000€ - 20,000€) = 95,000€ in gift tax.

 

3 hours ago, dbinmunich said:

4. Is this limit counted for ANY money received as gift doesn't matter if sender is relative or not?, What happens in case my sister sends me money as gift or investing on her behalf?

 

Gifts are strictly separate. Differentiation criteria are:

  1. the relationship between the gifter and the giftee, and
  2. the direction of the gift.

 

So if your mother alone had gifted you those 450,000€ ("mother --> son"), then your gift-tax-free amount of 400,000€ for a gift from your mother is used up for the next 10 years. After 10 years, it resets itself, i.e. after 10 years your mother could gift you again 400,000€ gift-tax-free.

 

The relationship "sister --> you" is gift tax class II, with a 20,000€ tax-free-amount. So she could only gift you 20,000€, anything above 20,000€ and you have to pay gift tax.

 

3 hours ago, dbinmunich said:

5. Is Bank authorised to ask me this declaration or is it just my responsibility to declare in Tax filings, will Bank report my declaration to Tax authorities to enable them to match with my tax filings?

 

Yes, since this is about observing money laundering legislation.

 

This is not about the gift tax, for the gift tax you have to notify the Finanzamt of the gift and submit a gift tax return (= Schenkungssteuererklärung) within 3 months of receiving the gift: http://www.zurecht.de/steuerrecht/schenkungssteuer/schenkungssteuererklaerung/

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