Gift tax on property in Germany

What counts as a gift

Section 7(1) treats as a gift “every voluntary transfer between living persons, in so far as the recipient is enriched at the expense of the giver”. A house or flat transferred for nothing qualifies. So does a transfer for a price clearly below its value, to the extent the recipient is enriched. A sale at fair value is not a gift.

The tax arises when the transfer is executed (section 9(1) no. 2). For land, the transfer is carried out through the notarial deed and the registration at the land register (Grundbuch); ask your notary which date is taken for the tax.

Who pays

Section 20(1) makes the recipient the taxpayer, and in the case of a gift also the donor. The tax office may therefore ask either of them. Agree in the deed who bears the tax, but the agreement does not bind the tax office.

Tax classes and allowances

Section 15 sorts people into three classes by relationship, and section 16 gives an allowance per class. For gifts the classes are not the same as for inheritance: parents and grandparents are class I only on death, so a child giving to a parent falls into class II.

Rates

Section 19 sets the rate by class and by the value of the taxable gift after the allowance:

As a calculation: a gift of a house valued at €500,000 from a parent to a child is €100,000 above the €400,000 allowance, so it falls in the 11% band, giving €11,000 before any exemption (section 19 also has a relief at bracket edges).

The ten-year rule

Section 14(1) adds together all gifts and inheritances from the same person within ten years, so each new gift is taxed on the total, less the tax that would have applied to the earlier ones. In practice, an allowance used by a gift is available again only after ten years. A parent can therefore plan a transfer in stages. Whether a staged plan suits your family is a question for an adviser; the law only states the rule.

Exemptions that matter for a home

• Family home between spouses (section 13 no. 4a). A gift from one spouse or registered partner to the other of ownership or co-ownership of a developed property in Germany, the EU or the EEA is exempt, to the extent that a flat in it is used as the couple’s own home. The exemption also covers taking over loans linked to buying or building it, or paying for later improvements.
• Let residential property at 90% (section 13d). Developed property let for housing is valued at 90% of its value, if the conditions of the section are met.
• Ordinary occasional gifts (section 13 no. 14) are exempt, but a house is not an ordinary gift.

The family home exemption between spouses has no holding period in the text of section 13 no. 4a, unlike the exemptions on death.

If the gift is reversed

Section 29(1) lets the tax lapse retroactively where a gift had to be returned because of a right of reclaim, or where the return was avoided under section 528 of the Civil Code. Whether a clawback clause suits you is a drafting question for the notary.

Reporting and the notary

A notarised gift is reported to the tax office by the notary (section 34(2) no. 3), and section 30(3) says the recipient need not file a separate notice where the gift is judicially or notarially recorded. Gifts of land need a notarial deed in Germany. The office can still ask for a return with a deadline of at least one month (section 31).

Other taxes on a gifted home

Real estate transfer tax: gifts are exempt (section 3 of the GrEStG); see transfer tax exemptions within the family. Capital gains: section 23(1) sentence 3 EStG credits the donor’s purchase date to the recipient, so the ten-year clock continues; see capital gains tax and the ten-year rule. A gift from abroad or to a non-resident may also raise a question under foreign tax law.

Which professional to consult

A notary drafts the deed and reports it. A tax adviser (Steuerberater) calculates the ten-year effect. A property valuer can document the value. Inheritance is covered in inheritance tax on property.