Evasion of inheritance and gift tax

In no other area of tax law is there so much potential for tax planning used in the same way as in the Inheritance tax and gift tax. Often, the heirs, donors or recipients are completely unaware that they may, under certain circumstances, carry out a taxable transaction wish to pursue or have already achieved. Our team of specialist solicitors, qualified lawyers and tax advisers in the fields of criminal tax law, inheritance law and international tax law is committed to looking after your interests.

Ignorance is no defence

Many donors, recipients and heirs are unaware that in all cases of inheritance and gifts one Obligation to report to the tax office exists. As a rule, failure to report such transactions does not, in practice, result in any penalty. However, this may change, particularly if, within a period of 10 years, the statutory allowances are exceeded through several individual gifts and, possibly, a case of inheritance. In this context, gifts made between individuals may not be offset against one another unless they constitute a uniform consideration in return for another benefit. Failure to report transactions relevant for tax purposes may in itself constitute tax evasion.

Particularly when it comes to the transfer of assets within the family, people are often unaware or do not realise that inheritance or gift tax may also be payable in such cases if the tax-free allowances are exceeded. Whilst each parent can, in principle, transfer €400,000 to each child tax-free over a period of 10 years, conversely, the tax-free allowance for gifts from a child to a parent is only €20,000.

Tax evasion can occur not only through a failure to file a return but also by providing false information in an inheritance or gift tax return. This is particularly common when assets held abroad have been bequeathed or gifted. However, it is also not uncommon for people to conceal domestic assets that they believe to be safe from the tax authorities, such as cash, bearer securities or other physical assets.

Be careful with transfers of assets from abroad

In cases involving foreign circumstances, so-called ‘favourable’ arrangements may give rise to situations in which a resident in Germany is named as a beneficiary and, under German law, a transfer of assets is deemed to have taken place – even though the beneficiary may have no access, or only very limited access, to these assets for years at a time. This can arise, for example, in the case of inheritances from the USA, where the testator or testators set up one or more pools of assets – known as trusts – during their lifetime. Similar problems can also arise in the context of foundation arrangements. However, this does not generally constitute tax evasion, as the beneficiaries are usually unaware of the legal consequences.

However, in the case of transfers of assets from abroad, beneficiaries should, if in any doubt, always seek legal advice as soon as they become aware of such transfers, in order to rule out the potential risk of committing a tax offence.