The family home as a vehicle for gift tax-optimized asset transfers

“Home sweet home”

Spouses have a total allowance of EUR 500,000 for gifts and in the event of inheritance for all transfers from one spouse to the other within a period of 10 years.

Transfers between spouses above this amount basically trigger donation or inheritance tax.

A significant exception to this is the gift of a family home or a part thereof to the other spouse. Such transactions are exempt from gift and inheritance tax according to an explicit provision in the Inheritance Tax Act. They do not even burden and consume the general allowance between spouses.

The only requirement here is that the transfer takes place between spouses and that at the moment of the transfer an apartment is available in this property for personal living purposes – the family home.

The property can also be located outside of Germany in an EU or EEA country.

There is no legal limit to the size of the property or its value.

Finally, there is also no regulation that sets a period for the duration of which, for example, use for personal living purposes is to be maintained after the transfer as a gift.

Thus this regulation opens up design options for transferring even large assets from one spouse to the other without having to pay gift tax.

It might be utilised to support the spouse who receives the  transfer. It can also be used as a design tool in cross-generational inheritance and gift tax planning.

Allocating assets to the spouse with enables them to exhaust their existing gift tax allowances in the event of an anticipated succession when making a gift to children.

The family home as a vehicle for gift tax-optimized asset transfers

This means that – compared to the case where only one parent has assets he can transfer them – twice as many assets can be transferred to their children free of gift tax by exhausting the gift tax allowances of both parents.

No legal time limit on the holding period of a transferred family home opens the possibility to transfer several family homes as a gift over a longer period of time. Existing holiday properties could be used for such transfers.

Existing inheritance tax allowances between the spouses are not burdened by the donation of the family home. These are thus still fully available, for example in the event of a later inheritance.

Insofar as the property previously transferred by way of donation was not the center of the family’s life, the surviving spouse can also take over the family home that he or she actually lives in, completely free of inheritance tax, in the event of a later inheritance. This requires that the surviving spouse, if he does not already live in the property himself, moves in  immediately and lives there for the next 10 years after the inheritance.

In case of inheritance, this privilege also applies to the children of the deceased. They can also inherit the family home of the deceased parent free of inheritance tax if they move in with the inheritance and remain a resident there for at least 10 years.

In contrast to the surviving spouse, here there is a cap to the benefited size of real estate with a living space of up to 200 m². If larger properties are inherited by children as a family home, the property is only partially exempt from inheritance tax up to this size.

Thus the family home can also be used to optimize inheritance tax in cross-generational estate planning with children.

As a Munich tax office, Alexia Huber & Partner Steuerberatungsgesellschaft mbB advises clients on questions relating to donations and estate planning. Based on the considerations of our clients, our tax consultants create holistic concepts for a tax-optimized implementation.

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Alexia Huber & Partner
Steuerberatungsgesellschaft mbB
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80639 München

089 / 12 19 32 8 – 00
089 / 12 19 32 8 – 30
info@steuerberaterin-huber.de
www.steuerberaterin-huber.de

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Steuerberatungsgesellschaft mbB
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82131 Gauting

089 / 12 19 32 827
089 / 28 97 29 49
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Alexia Huber & Partner
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94469 Deggendorf

0991 / 38 30 39 20
0991 / 38 30 39 21
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