Law of donation within the EU
September 16, 2016 | 70,00 EUR | answered by Dipl.-Kfm. Frank-Olaf Illiges
Dear Sir or Madam,
I have a question regarding the gift tax law within the EU (specifically between Germany and Bulgaria). My uncle is a Bulgarian citizen with only one residence in Bulgaria, but he has a German bank account with a sum of 70,000 euros. He now wants to close this account and gift the money to me and my mother - both German citizens with residence in Germany - as he has no other heirs. Now we are wondering how to do this in the most advantageous way within the possible tax exemptions.
I would like to know:
- What is the specific tax exemption for a gift from my uncle to both me and my mother? We would like to receive equal transfers of 35,000 euros each, but we will adjust based on the allowed exemption.
- How long is the tax exemption valid for (e.g. 10 years)?
- What tax exemption would apply if my uncle were to gift a portion of the total sum (in addition to transferring the allowed exemption to me and my mother) to my stepfather (a German citizen)? Within what timeframe could my stepfather then potentially transfer the money received from my uncle (also as an exemption) to me or my mother?
- Is it necessary for the gift to be notarized or is it sufficient to report it to the tax office within three months?
- Is there any other more advantageous way (besides a gift) to distribute my uncle's money to me and my mother?
Thank you in advance for your response!
Best regards
Dear inquirer,
Thank you for your inquiry, which I will gladly answer taking into consideration your input and the rules of this platform.
Please note that my explanation is based on the facts presented, and that adding, omitting, changing information, or ambiguity in the information can change the tax result. Please be aware that this does not replace individual comprehensive advice.
Both your mother and you belong to tax class II and therefore each have a tax-free allowance of 20,000.00 EUR (§ 15 para. 1 tax class II 2 and 3 Inheritance and Gift Tax Act (ErbStG) in conjunction with § 16 para. 1 no. 5 ErbStG). The part of the gift exceeding the allowance of 15,000.00 EUR is subject to a gift tax rate of 15% (§ 19 para. 1 ErbStG).
Gifts from one person are aggregated within 10 years (§ 14 para. 1 ErbStG). Therefore, you can only use your allowance of 20,000.00 EUR again for gifts from your uncle that he makes after 10 years.
Your stepfather belongs to tax class III and therefore also has an allowance of 20,000.00 EUR (§ 15 para. 1 tax class III ErbStG in conjunction with § 16 para. 1 no. 7 ErbStG).
Therefore, your uncle has the possibility to gift the amount of 60,000.00 EUR tax-free.
When passing on the amount from the stepfather to your mother and you, there is the tax issue of so-called chain gifting. The tax authorities assume abuse of design in case of chain gifting according to § 42 of the Tax Code (AO) and tax the gift as if it was made directly from the donor to the last link of the gift chain.
In chain gifting, the tax authorities check if the initial recipient of the gift still has decision-making power over the passing on of the received assets. This is the case if the second gift is made several months after the first gift, if the amount of the first and second gift is not identical, or if the money was converted into securities beforehand. Lastly, there should be no explicit obligation to pass on the gift in the initial gift.
Legally, a notarized gift contract is not necessary. You must then report the gift to the tax authorities within three months (§ 30 para. 1 ErbStG).
Without consideration, the only way to pass on the money to your mother and you is through gifting.
Sincerely,
Dipl.-Kfm. Frank-Olaf Illiges
Tax Consultant
Ringstraße 98
33378 Rheda-Wiedenbrück
Phone: 05242/4055666
Fax: 05242/4055677
e-mail: office@illiges-steuerberatung.de
Website: www.illiges-steuerberatung.de
