Tax implications of financial gift(s) from US to Germany

[Kavm 4]

I could use advice from the very knowledgeable posters on this forum on the following matter:

 

My wife and I are based in the US. One of my wife’s sisters, let’s call her S, residing in Germany is not doing well financially. It is a bit of a chronic problem and we would like to support her by gifting something like $5000 on a yearly basis. [Other sisters are also going to provide additional amounts, so it will be more in total.] S, however, has poor money management skills and would spend it too quickly if provided the annual amount as a lump sum. So, our preferred payment schedule (with other sisters) is to provide monthly support to S. 

 

To send monthly USD checks to S/Germany is not practical. So, our preferred option is to send a $5000 check to another sister J - who then transfers the monthly amounts to S.

 

The question for the forum is whether there are any tax implications to all this. Does S pay taxes on these gifts? If we make transfer through J (by sending her a check, which she deposits in her account and transfers in monthly installments to S) - would it subject J to any taxes in Germany?

 

Thank you very much in advance for your advice!

[PandaMunich 16,864]

Not ideal, you would be burning through the 20,000€ gift-tax-free amount (which only resets every 10 years) for no reason.

 

Better use Transferwise to send S the money in € into her German account every month directly (very low fees): https://transferwise.com/

 

P.S. We no longer use cheques in Germany.

[Kavm 4]

Thank you so much for clarifying that, PandaMunich! It seems best to not involve J and send money directly to S. We will look at the transferwise,com link. 

 

Really appreciate your quick response! Many many thanks!

[Kavm 4]

Hello PandaMunich!

 

I explained it to my wife and we will open the TranferWise account right away. She asked me two questions that I could use help on:

1. I presume the tax liability for the gift applies to S (Beschenkter) alone. 
2. Is the lifetime 20,000 Euro gift-tax free amount per donor (Schenker) or to the total gifts from each of the sisters.

Many thanks!

[PandaMunich 16,864]

1. No, the liabilty applies to both, see here.

2. It's 20,000€ per donor, every 10 years (not lifetime).

[Kavm 4]

Thank you very much! Really appreciate it!

[endsee 2]

@PandaMunich

What would happen in the opposite situation where a German resident wants to transfer money as a gift to their spouses parents in the US?

Would the German resident who is transferring the money be subject to having to declare this amount to the Finanzamt? The amount would be a few thousand euros.

[PandaMunich 16,864]

>endsee wrote: What would happen in the opposite situation where a German resident wants to transfer money as a gift to their spouse's parents in the US?

Would the German resident who is transferring the money be subject to having to declare this amount to the Finanzamt? The amount would be a few thousand euros.

You always need to report such a gift to the Finanzamt and once it exceeds 20k€ person-to-person, you will have to pay German gift tax, see here: https://expertise.tax/en/faq-german-tax-system/#tell_about_inheritance_gift

However, what you describe could just be you financially supporting your spouse's needy, elderly parents, which is a totally different case, that would actually lower your taxable income, i.e. you would save income tax because of this, see here for details: https://www.toytowngermany.com/forum/topic/296106-anlage-unterhalt-if-you-support-parentsspouse/

[endsee 2]

Thank you, @PandaMunich.

Regarding this 20K EUR person-to-person gift tax allowance, how would it work in a situation where I pay for an expensive flight ticket for myself and my non-spouse partner?

Let's say the flight ticket costs 10k EUR and I receive a direct wire transfer to my German bank account for my partner's 5k EUR portion. Will this also be considered a "gift" and have to be reported to the Finanzamt?

[PandaMunich 16,864]

If your partner reimbursed you his/her ticket cost, then all that happened was a him/her paying off a loan with no interest that you had given him/her, so the ticket cost was not a gift.
The only "gift" would be the 5.5% interest the Finanzamt assumes in such cases of no charged interest, i.e. 5.5% p.a. on the loaned ticket cost: https://datenbank-nwb-de.translate.goog/Dokument/488535/?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp

[endsee 2]

Thank you, @PandaMunich.

That's very interesting, thank you for sharing the link.

Would something like that also have to be reported to the Finanzamt? What I'm worried about is that since we usually put all expenses, including expensive travel expenses on my credit card, the Finanzamt would become suspicious of the probably higher than average transfers to my account. We are both German residents with a regular 9 to 5 so our communication with the Finanzamt is quite limited since all our taxes are already withdrawn from our paycheck.

What would be the best course of action for someone in our situation?

I always assumed this would be treated as part of the gift tax allowance so thank you for correcting me.

[PandaMunich 16,864]

Have your partner transfer you her/his share immediately, so that there is no interest period?

[endsee 2]

Yes, more or less.