Gift tax and capital gains tax on mixed gifts
August 2, 2016 | 35,00 EUR | answered by Oliver Burchardt
Testator A passed away in June 2016. Life partner B has inherited, among other things, a condominium (ETW) previously owned by A. A acquired the ETW in 1972. Following the inheritance, B gifts the ETW to C (A's nephew) in exchange for C taking on the inheritance tax proportionate to the ETW.
Question:
1.
If C sells the ETW, would capital gains tax be applicable? If so, would it be on the entire gain from the sale or only a portion due to the mixed gift?
2.
Can the inheritance tax that B is passing on to C be taken into account for the gift tax that C must pay or for any potential capital gains from a sale?
Dear questioner,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
In the case of a mixed gift (I assume you are using this term consciously because the civil law assessment and consultation have led to it), a division between the gratuitous and remunerative part must be made.
This means that capital gains tax may apply in case of a sale by C, but only for the remunerative part. This part is to be determined in relation to the value of the inherited tax compared to the value of the received apartment.
The inheritance tax to be paid by C must be taken into account for both the income tax and the gift tax to be paid by C.
For income tax purposes, the profit from the sale is to be calculated as the difference between the acquisition costs (defined by the inherited tax) and the proportionate sales proceeds.
For gift tax purposes, only the gratuitous part is to be seen as enrichment. By dividing the gift into a remunerative and a gratuitous part based on the value ratios, the inherited tax is automatically taken into account.
Best regards,
Oliver Burchardt
