Can I transfer my severance payment to my children in a tax-efficient way?
February 15, 2023 | 40,00 EUR | answered by Edith Hartmann
Dear Tax Advisor,
I am facing the decision to receive a severance payment from my employer. In this regard, I am wondering if it is tax-efficiently possible to transfer the severance payment to my children.
Here is the situation: I am 55 years old and have two adult children, both of whom are studying. The severance payment I will receive amounts to a five-digit sum. Since I already have a steady income, I am considering whether it would be more tax advantageous to transfer the severance payment to my children to support them in their financial situation.
My concerns are that I do not know exactly how the transfer of the severance payment to my children will be treated for tax purposes. I want to ensure that my children benefit from the transfer and can also take advantage of tax benefits. Additionally, I am unsure if there may be legal barriers or restrictions that could prevent the transfer.
Therefore, my question to you is: Is it possible to transfer my severance payment tax-efficiently to my children and what tax aspects need to be considered? What legal framework should be taken into account and what solutions do you see in this case?
Thank you in advance for your support and advice.
Kind regards,
Wilhelm Neumann
Dear Mr. Neumann,
Thank you for your inquiry regarding the transfer of a severance payment to your children and the associated tax and legal aspects. I am happy to provide you with detailed information on this topic.
In principle, it is possible to transfer a severance payment to your children, but certain tax and legal aspects must be considered. First and foremost, it is important to know that a severance payment is generally taxable, regardless of whether it is distributed to you or to your children. This means that the severance payment is generally taxed at your personal tax rate.
However, if you wish to transfer the severance payment to your children to support them financially, this can be tax advantageous, as your children may have a lower tax rate than you. In this case, the severance payment would be added to your children's income and taxed at their individual tax rate.
It is important to note that gifts and transfers of assets are treated for tax purposes and certain tax-free allowances apply. Currently, the tax-free allowance for children is 400,000 euros per child every 10 years. This means that gifts or transfers of assets up to this amount are tax-free. If the severance payment exceeds the tax-free allowance, your children will have to pay taxes on the amount exceeding it.
It is also important to consider that there may be legal restrictions or regulations that could prevent a transfer. Therefore, it is advisable to seek legal advice beforehand to ensure that the transfer of the severance payment to your children is legally sound.
Overall, transferring a severance payment to your children is possible from a tax perspective and can be advantageous, especially if your children have a lower tax rate. However, it is important to examine the tax and legal aspects in advance and seek professional advice if necessary.
I hope this information has been helpful to you and I am available to answer any further questions you may have.
Best regards,
Edith Hartmann
Tax Advisor
