Are there tax differences for gifts to relatives and non-relatives?
June 20, 2022 | 50,00 EUR | answered by Bernd Schreiber
Dear Mr. Tax Advisor,
My name is Martina Schottmann and I have a question regarding gift tax. I am planning to give my nephew a larger sum of money to help him out financially. However, I am unsure if there are any tax differences depending on whether I gift the money to a relative or to a non-relative.
In the current situation, my nephew is in a difficult financial situation and I would like to help him by giving him a larger sum of money as a gift. However, I have heard that there may be tax differences depending on whether the recipient is a relative or not.
My concern is that I may have to pay more taxes through gifting to my nephew than to a non-relative. Therefore, I would like to know if there are indeed tax differences and how they could affect me.
My question to you is: Are there tax differences in gifts to relatives and non-relatives? If so, what impact could these differences have on my tax burden and what options are there to minimize them?
Thank you in advance for your help.
Sincerely,
Martina Schottmann
Dear Mrs. Schottmann,
Thank you for your question about gift tax. It is understandable that you are wondering if there are tax differences depending on whether you gift your money to a relative or a non-relative. I will answer this question as thoroughly as possible.
In general, there are indeed tax differences for gifts to relatives and non-relatives. Gifts to relatives - such as in your case to your nephew - usually fall into a more favorable tax class than gifts to non-relatives. The tax classes are determined by the relationship between the donor and the recipient.
The following tax classes apply to gifts to relatives:
- Tax class I: spouses, children, stepchildren, grandchildren, parents, grandparents - very high tax-free allowances apply before gift tax is due.
- Tax class II: siblings, nieces, nephews, in-laws - the allowances are lower than in tax class I.
- Tax class III: all other persons - the lowest allowances apply here.
Therefore, gifting to your nephew would generally be more tax advantageous than gifting to a non-relative, as he falls into tax class II. The exact tax-free allowances may vary depending on the state.
To minimize your tax burden, you could, for example, spread the gift over several years to take advantage of the allowances. Additionally, you could also explore legal planning options to optimize gift tax.
I hope this information helps and answers your question about gift tax. If you have any further questions, please feel free to contact me.
Best regards,
Bernd Schreiber
