Can I avoid gift tax when buying a property?
April 18, 2023 | 50,00 EUR | answered by Eiko Hoffmann
Dear tax advisor,
I am planning to buy a property and I am wondering if I can avoid gift tax. My grandfather wants to give me a financial contribution to help with the purchase. He has already announced that he wants to gift me a larger sum of money to assist with financing the house.
However, I am unsure if this gift would incur gift tax and how much it could be. I am concerned that the gift tax could amount to a significant portion of the gift and thus increase the financial burden for both of us.
Are there ways to avoid gift tax when buying a property? What tax benefits could there be if my grandfather provides me with the money in a different way? I want to make sure we find the best solution to minimize the financial burden.
Thank you in advance for your support and advice.
Sincerely,
Georg Schwarz
Dear Mr. Schwarz,
Thank you for your question regarding gift tax in relation to the purchase of a property. It is understandable that you are concerned about how your grandfather's gift could affect the tax burden and how you may be able to avoid it. I will try to address your concerns and provide you with some possible solutions.
First of all, it is important to know that gift tax in Germany is incurred when assets are transferred gratuitously, meaning when you receive a gift for which you do not have to pay anything. The value of the gift is crucial for determining the amount of tax that may be due. In your case, if your grandfather wants to gift you a substantial sum of money to finance the purchase of a property, gift tax may apply.
The good news is that in Germany, there are tax-free allowances up to which gifts remain exempt from tax. Currently, the tax-free allowance between grandparents and grandchildren is 200,000 euros. This means that you can receive up to this amount tax-free without having to pay gift tax. If the gift exceeds this amount, the excess amount will be taxed at a rate between 7% and 30%, depending on the value of the gift.
To avoid or at least minimize gift tax, there are various options available. One option could be for your grandfather to not gift you the money immediately, but instead provide it to you as an interest-free loan. This way, you would have to repay the money later and it would not be considered a gift. Another possibility could be for your grandfather to gift you the property itself instead of giving you the money. In this case, the gift would stem from the property itself rather than from a sum of money.
However, it is important to note that there are always tax risks associated with avoiding gift tax. Therefore, I strongly recommend that you seek advice from a tax advisor or lawyer to find the best solution for your situation. Each case is unique and it should be carefully assessed which options are most suitable to minimize gift tax.
I hope that this information has been helpful to you and I am available for further questions.
Best regards,
Eiko Hoffmann
