German gift tax in cases of multiple usufructs in succession (§14 para. 1 Inheritance and Gift Tax Act) from 1.1.2009
German gift tax in case of multiple usufructs in succession (§14 para. 1 BewG) from 1.1.2009
Question: Only regarding German tax law, not Swiss law. Are the following considerations regarding German law correct and feasible?
Scenario: Swiss father residing in Switzerland wants to pass on Swiss property to CH daughter or 2 CH grandchildren residing in Germany in 2011.
(It is known and undisputed that in the case of inheritance according to Art. 8 para. 2 sentence 4 DBA-CH, this would be tax exempt in Germany, as all parties involved are Swiss citizens.)
However, not in the case of a gift, as this is not covered by the DBA-CH.
Assumption: Market value of the property in a metropolis is 20 annual rental incomes, abbreviated as "ARI" below.
1. If the father, aged 76 (capital value factor 7.544 ARI), gifts the property to the daughter with lifelong usufruct, she must still pay tax in Germany on the market value of e.g. 20 ARI minus usufruct 7.544 ARI minus personal allowance of 400,000 euros. (Tax class I, tax rates according to known table, etc. known). If the father lives only 3 and not at least 4 more years after the gift, a recalculation of the usufruct based on the actual duration of usufruct instead of the statistical capital value factor will be carried out, i.e. the gift tax will increase accordingly, as only e.g. 3 ARI of usufruct can be deducted instead of 7.544 ARI.
2. If the father, aged 76 (capital value factor 7.544 ARI), gifts the property to the two grandchildren with lifelong usufruct, they must still pay tax in Germany on the market value of e.g. 20 ARI minus usufruct 7.544 ARI minus personal allowance of 200,000 euros each = total of 400,000 euros according to the table. If the father does not live at least 4 more years after the gift, a recalculation of the usufruct based on the actual duration instead of the statistical capital value factor will be carried out, i.e. the gift tax will increase accordingly, as only e.g. 3 ARI of usufruct can be deducted instead of 7.544 ARI. Skipping the daughter causes the same gift tax today and additionally avoids the later transfer from the daughter to her children.
3. If the father, aged 76 (capital value factor 7.544 ARI), gifts the property with lifelong usufruct for himself and after his death with lifelong usufruct for his 45-year-old daughter (capital value factor 16.276 ARI) to the two grandchildren, these grandchildren must still pay tax in Germany on the market value of e.g. 20 ARI minus longer usufruct 16.276 ARI minus personal allowance of 200,000 euros each = total of 400,000 euros according to the table.
4. Since the daughter's usufruct is only activated after the father's death, she theoretically receives as a gift the difference of her capital value 45 years with 16.276 minus the father's capital value of 76 years with 7.544, i.e. 16.276-7.544=8.732 ARI, which she must pay tax on as a gift minus her allowance of 400,000 euros.
5. In cases 3 and 4, if the father does not live at least 4 more years after the gift and the daughter does not live at least 9 more years, a recalculation of the usufruct based on the actual duration instead of the statistical capital value factor as outlined above will be carried out, increasing the amount of the gift to be taxed towards the daughter or grandchildren accordingly.
Thank you.
