What is the difference between inheritance tax and gift tax?
October 5, 2023 | 50,00 EUR | answered by Ella König
Dear tax advisor,
My name is Sebastian Eckstein and I am facing an important decision regarding the tax aspects of my wealth. I recently inherited a significant sum of money from my parents and am considering whether I should pass on this wealth. In doing so, I came across the terms inheritance tax and gift tax and am wondering what the exact difference is between these two types of taxes.
Currently, I am unsure whether I should gift my inheritance during my lifetime or if it would be more tax-efficient to pass it on after my death. My concern is that I may end up paying unnecessarily high taxes due to a wrong decision and thus lose a portion of my wealth.
Therefore, I would like to understand from you how inheritance tax and gift tax differ from each other and what the tax implications are of gifting my wealth during my lifetime versus after my death. Are there specific deadlines or tax-free allowances that I need to consider? And what would be the most sensible strategy in my case to save on taxes?
I hope that you can assist me in this important decision and look forward to your expert advice.
Sincerely,
Sebastian Eckstein.
Dear Mr. Eckstein,
Thank you for your inquiry regarding the tax aspects of your assets in relation to inheritance tax and gift tax. I understand that it is an important decision that you have to make and that you are considering the possible tax implications.
The main difference between inheritance tax and gift tax is when the tax is due. Inheritance tax is a tax levied on the value of assets that you inherit from a deceased person. The tax is only due when you actually inherit the assets. In contrast, gift tax is due when you give away assets during your lifetime. The timing of taxation is different, but the tax rates and exemptions are similar.
In terms of whether it is more tax advantageous to gift assets during your lifetime or to inherit them after your death, I cannot provide a blanket answer as it depends on various factors. However, there are certain deadlines and exemptions that you should consider. For example, there are gift tax exemptions that apply every 10 years and vary depending on the relationship. Similarly, there are inheritance tax exemptions that vary based on the relationship.
The most sensible strategy to save taxes depends on your personal situation and assets. It may be beneficial to gift assets during your lifetime to reduce the tax burden. On the other hand, there may also be tax benefits to inheriting assets after your death, especially if they are large sums.
I strongly recommend that you schedule a personal consultation so that we can analyze your individual situation more accurately and provide you with tailored advice. Please bring all relevant documents to our meeting so that we can assess your situation optimally.
I hope this information helps you and I am available to answer any further questions.
Sincerely,
Ella König
