Gift tax for the sole use of a joint mortgage
November 12, 2019 | 75,00 EUR | answered by Steuerberater Knut Christiansen
Good evening,
I co-own a real estate portfolio in Germany with my ex-wife as a GbR. Each of us owns 50%. The portfolio was not subject to separation of property. We are both registered in the land register. Rental income flows into a joint account, from which ongoing costs and investments for the properties are also paid. Furthermore, we have a joint mortgage that is also serviced through the joint account.
I now want to make another real estate investment, but this time solely in my name. For financing, I would like to increase the mortgage for the joint portfolio and use the amount from the increase to pay for part of the purchase price of the new property. (The joint mortgage currently represents only about 15% of the current value of the properties. An increase to about 30% would be easily possible.)
The amount in question would be EUR 180,000. The payout from the bank would initially go to the joint account as well. My concern is that the tax office may consider half of the amount, 90,000, as a gift. It is actually money from my ex-wife that I am using for personal property acquisition.
Could I avoid the risk of being classified as a gift by transferring the amounts for interest and repayment from a personal account to the joint account? In this case, the amount over EUR 90,000 would essentially be a loan granted to me by my ex-wife. Would it require a loan agreement between my ex-wife and me? Or would the mere fact of payment flows (90,000 to me and monthly payment of interest and repayment from me) be sufficient evidence of granting credit?
I would like to avoid my ex-wife having to pay tax on interest income. But in principle, the whole thing is just a pass-through item for her. The interest portion to be paid to the lending bank is identical to the portion I reimburse to the joint account. (I pay my and her share into the account.) Or would the tax office not compare these interest payments and income? In the worst case, could the tax office even assume that it is money laundering?
Final question: If the tax office considers the EUR 90,000 as a gift, what would be the gift tax rate? It would be the only gift I would receive in the relevant assessment period.
Good evening and thank you for using frag-einen.com!
I would like to answer your question within the following initial assessment:
If I understand you correctly, you want to increase an existing loan of the GbR and then use this money to purchase your own property.
The following problems arise:
1. The loan agreement of the GbR is not in your name. Therefore, you would not be able to claim the interest, as you are not the (sole) borrower or the contract is issued to the GbR. The GbR, in turn, does not use the money for income generation, so deducting the interest as advertising costs would also not be possible.
2. If the GbR takes out a loan, it would have to pass the loan on to you. The interest rates would have to be at least commercially reasonable from the perspective of your ex-wife. However, since the loan to you is not adequately secured (no mortgage registration in favor of the GbR), the interest rate would have to be higher. Otherwise, a gift from your ex-wife to you could be assumed due to the too favorable interest rate.
If the GbR lends you money, at least from the perspective of your friend, capital gains would be present. These are generally subject to a flat tax rate of 25%. A deduction of advertising costs (interest expense for the loan taken out) is not possible in this case (§ 32d para. 9 EStG).
A gift cannot be easily assumed otherwise, since it is not intended to be a gift, but it is clear that you want to repay the money to the GbR. However, if you still decide to proceed despite the problems, a loan agreement should be drawn up. You would then repay the loan through a monthly installment from your personal account to the GbR's account (including interest).
Because you asked: In the case of a gift, a tax-free allowance of 20,000 EUR would apply. Therefore, 70,000 EUR would have to be taxed at a rate of 30%. Money laundering does not appear to be present based on the circumstances from my perspective.
Therefore, I would advise against concluding the loan in the name of the GbR due to the above points. Instead, I would recommend taking out the loan in your own name. If necessary, it may be possible to use the existing properties as security (assignment of mortgages) for the new loan. However, you could also use your own property as collateral, which I consider the safest option overall.
I hope I have answered your questions. If not, please feel free to ask follow-up questions at no cost.
I would like to point out that this forum cannot replace a complete tax consultation. Rather, it serves to provide an initial tax assessment. Incomplete or missing information may affect the legal outcome.
Best regards,
Knut Christiansen
Tax consultant
