When does the gift tax have to be paid?
July 21, 2022 | 50,00 EUR | answered by Bernd Schreiber
Dear tax advisor,
My name is David Brandes and I am currently dealing with the topic of gift tax. My grandfather is planning to gift me his house, which of course makes me very happy. However, I am unsure of when exactly the gift tax would be due in this case and how much it could amount to.
The current situation is as follows: My grandfather is already retired and wants to transfer the house to me to ensure that it remains in my possession after his passing. The house has an estimated value of 500,000 euros. Since I do not have very high financial means myself, I am worried about whether I can afford to pay the gift tax if it suddenly becomes due.
Therefore, my question is: When would the gift tax need to be paid if my grandfather gifts me his house, and how much could it amount to in my case? Are there any ways to avoid or at least reduce the payment of gift tax? I would greatly appreciate it if you could help me with this, as I am not very knowledgeable in this area and would like to be prepared.
Thank you in advance for your assistance.
Sincerely,
David Brandes
Dear Mr. Brandes,
Thank you for your question regarding gift tax. It is understandable that you are concerned about when gift tax is due and how much it could amount to in your case. I will try to answer these questions as comprehensively as possible.
In general, gift tax becomes due once the gift has been completed. This means that once your grandfather has transferred the house to you and you are registered as the new owner in the land register, gift tax becomes due. Gift tax is calculated based on the value of the gift, in your case the 500,000 euros that the house is worth.
The amount of gift tax depends on the relationship between the donor and the recipient as well as the value of the gift. In your case, it is a gift between grandfather and grandson, which falls under tax class I. For gifts within this tax class, there is a tax-free allowance of 400,000 euros. This means that only the amount above this allowance is taxed.
In your case, only the amount of 100,000 euros (500,000 euros gift value minus 400,000 euros tax-free allowance) would be taxed. The exact amount of gift tax depends on your personal tax rate, which can vary depending on the federal state. It is important to note that the tax rate is progressive, meaning that the higher the value of the gift, the higher the tax rate.
There are various ways to avoid or at least reduce gift tax. One possibility, for example, would be for your grandfather to not gift you the entire house, but to sell you a part of the house. This way, you could avoid gift tax as it would then be a purchase and not a gift.
Another option would be for your grandfather to transfer the house to you subject to a usufruct reservation. This means that he continues to live in the house and you only receive the house after his passing. In this case, no gift tax is due, as the gift is only completed after your grandfather's death.
However, it is important to note that such arrangements should always be examined on a case-by-case basis and it is advisable to consult an experienced tax advisor to find the best solution for your individual situation.
I hope this information has been helpful and I am available for further questions.
Best regards,
Bernd Schreiber
