Gifts of assets made during one’s lifetime (gifts) are of interest from a tax perspective, as tax allowances can be utilised; however, they may also give rise to tax liabilities.
It is not uncommon for post-war generations in Germany to have built up substantial wealth over the course of decades, which they will either bequeath to their descendants in the coming years or transfer to them as gifts whilst they are still alive.
It is precisely the Gifts made during one’s lifetime, the gift is of particular interest to wealthier private individuals, as it allows them to make use of tax allowances and actively shape the terms of the gift.
Nevertheless, it is important to bear in mind that tax liabilities may arise from a gift.
It follows from the Inheritance Tax Act, which applies equally to gifts, that both the recipient and the donor within three months are obliged to report the gift to the relevant tax office as soon as they become aware of it. The same applies to heirs in the case of an inheritance. Asset managers and insurance companies may also be subject to this reporting obligation.
To display it, simply enter a an informal letter to the relevant tax office, which should set out the key details regarding the persons involved and the assets transferred.
In certain cases, the obligation to report may not apply, for example where it is clear that no tax will be due. If notaries or courts are involved in the process, — for example, where the matter concerns the opening of a will or transactions requiring notarisation, such as the transfer of property or company shares by way of gift — they are legally obliged to report the gift or the succession and, in this respect, relieve the parties involved of this obligation.
If such a report is failed to be made in breach of duty, this may in itself constitute entry into the Stage of an attempted tax evasion . This is where issues may arise if, for example, past gifts – which were not themselves subject to notification – need to be taken into account as prior gifts in the context of a new gift. Those affected should therefore check very carefully whether they are required to fulfil any notification obligations.
Following the notification, the tax office will, as a rule, request the person who, as part of the notification, has agreed to bear any tax liabilities to submit a tax return within one month. However, the tax office may request both parties to submit the return.
Here, too, the mere fact that the deadline for filing a tax return has passed is sufficient to constitute the commencement of the attempt to evade tax.
If the gift reported is subject to tax, the tax office will subsequently issue a Gift tax assessment notice. It might be advisable to check whether this is factually and mathematically correct.
If you wish to pass on your assets to future generations, a professional handling of the gift-giving process have a tax-optimising effect and thus reduce the tax burden for you or the recipient.
However, even if, in the rare event that there is no scope for optimisation, it is still essential to ensure that figures are reported and explained accurately, and to check that notices from the tax authorities are correct.
If you have any questions regarding Tax planning or if you would like professional support to assist with a gift-giving process, our Specialist solicitors in tax law and tax advisers We’d be happy to help.