How do donations affect my inheritance tax?
November 30, 2022 | 60,00 EUR | answered by Fred Wittik
Dear tax consultant,
My name is Felix Bittner and I am currently dealing with the topic of gift tax and inheritance tax. My father is planning to give me a larger sum of money to financially support me. However, I am concerned about how this gift will affect my future inheritance tax.
Currently, I have a wealth of X euros and my father is planning to gift me Y euros. I am unsure if this gift will result in a higher taxable inheritance later on, and therefore increase the inheritance tax burden. I am worried that this could lead to financial problems and would like to weigh all possible consequences in advance.
Therefore, my question to you is: How do gifts affect my inheritance tax and how can I prevent possible tax pitfalls? Are there ways to minimize the inheritance tax burden through strategic gifts or are there specific tax exemptions I should be aware of? I would like to receive a clear assessment of my financial situation in order to be well-prepared for the future.
Thank you in advance for your support and advice.
Best regards,
Felix Bittner
Dear Mr. Bittner,
Thank you for your inquiry regarding gift tax and inheritance tax. It is understandable that you are concerned about the implications of a gift on your future inheritance tax. I am happy to provide you with a detailed response to your question.
First and foremost, it is important to know that gifts are generally subject to tax. If your father wishes to gift you a large sum of money, this gift will be taken into account for tax purposes. Gift tax is calculated based on the value of the gift. Depending on the amount of the gift and your relationship to your father, different tax rates may apply. However, there are also tax-free allowances up to which gifts remain exempt from tax.
As for the impact on inheritance tax, gifts are generally taken into consideration when calculating the future inheritance. This means that gifts made within ten years before the inheritance will be considered when calculating the inheritance tax. This could result in a higher taxable inheritance if you have already received gifts.
To prevent potential tax pitfalls and minimize the burden of inheritance tax, there are various planning options available. One option is to structure the gift in a way that takes advantage of the applicable tax-free allowances. Currently, the tax-free allowance for gifts between parents and children is €400,000 every 10 years. If the gift is below this amount, no taxes will be due. Gifts can also be divided among different individuals to maximize the use of tax-free allowances.
It is advisable to seek advice from a tax advisor or lawyer in your case to find the most suitable tax planning strategies and avoid potential pitfalls. Early planning and consultation can help you understand your financial situation and secure it for the future.
I hope that this information has been helpful to you and I am available to assist you with any further questions.
Best regards,
Fred Wittik
