Donations and Disclosure Duty: Doubts

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Hello, I just registered on this forum although I have read many threads over the months and they were extremely useful.


I would like to ask a tax question and it’d be great if somebody with German tax knowledge could tell me what they think.

 

I am currently living in Germany. Last year I started working as a self-employed person and I am slowly building my client base. I have been registered as a “Gewerbe” since the beginning of 2020 and I also received a tax number from the local Finanzamt. 

 

Because 2020 was my first year as self-employed person and the income flow for the following months was very uncertain and possibly very low (even more so once the Coronavirus pandemic started) my parents sent me a sizeable contribution at the beginning of 2020 to cover my essential needs for 2020 and possibly the first half of 2021 (housing, private health insurance etc). Months ago a tax advisor had told me that each parent can send you up to 400.000€ over a period of 10 years and that under that threshold you don’t need to worry so I didn’t even think about contacting the Finanzamt. 

 

Today I panicked because I read that any gift, no matter what size, must be notified to the Finanzamt within 3 months, and then they will let you know if you have to pay taxes on it or not. But shortly after I read that this “disclosure obligation” (Anzeigepflicht) does not apply to some situations, including those donations whose MOTIVE is certainly tax-free, like “donations for reasonable maintenance and study/training” (Zuwendungen zum Zwecke des angemessenen Unterhalts oder zur Ausbildung des Bedachten).

 

So, if I understood correctly, this disclosure duty applies to all gifts that WOULD BE TAXABLE ONCE THE THRESHOLD IS REACHED (for example, if I already have a stable income and my father decides to send me 10.000 euros anyway) but not to those donations that would not be taxable under any circumstance. Did I get this right?

 

Also, would the Finanzamt become suspicious if the money I made in the 2020 is not sufficient to cover living expenses or do they just assume I have personal resources and avoid digging deeper unless they have other valid reason to? In other words, is not reporting enough money for a somebody to mantain himself/herself for that tax year typically a sufficient reason for a tax audit or not? 

 

Thanks in advance for the reply.

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I'll leave others to comment on the German aspects but from a UK perspective there may be an Inheritance Tax (IHT) issue to take note of but that (and potentially the German side too) depends on whether your parents have given you the money or loaned it to you, either interest-free or at interest.  If the latter then as long as you will be repaying it, i.e. it really is a loan, then I'm pretty sure there's nothing further on the IHT side.

 

If it is a gift of more than £3,000 in any UK tax year, then if the person gifting the money dies within 7 years, some or all of the gift has to be taken back into the value of the deceased's estate, i.e. it counts for IHT purposes.  Inheritance Tax: Gifts - GOV.UK (www.gov.uk)

 

If the estate is worth more than the deceased's IHT threshold (a bit complex but £325,000 at the very least and up to £1m when the second spouse dies and passes on the family home as well as other assets, subject to it being reduced because of chargeable events being taken into consideration) then IHT will be payable  Inheritance Tax - GOV.UK (www.gov.uk).

 

Therefore, if it is a gift you should formalise it on paper (just within the family) and place that alongside the donor's will and other important papers so that the correct IHT treatment can be afforded when that evil day comes...   

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