Avoiding gift tax – what are the options??

The joy of a generous gift can quickly be clouded when gift tax becomes due. No wonder that many gift givers and gift takers want to avoid the gift tax. The gift tax is treated in the same law as the inheritance tax, the so-called inheritance tax and gift tax law. If you want to avoid the gift tax, you can do so not only by making sure that the gift does not exceed the respective tax-free amount. In the following article you will learn how you can avoid gift tax without getting into trouble with the law.

  • The most important facts in brief
  • If you want to avoid the gift tax, you have several options to do so.
  • Gift tax can be legally avoided, for example, by making chain gifts.
  • In the case of chain gifts, the obligation to pass on the gift may not be stipulated in the contract.
  • Every ten years, the tax-free amount for gifts can be fully utilized.
  • Avoiding gift tax with cash is not permitted.

Avoid gift tax legally possible?

Who wants to avoid the gift tax legally, has several possibilities. With gifts one has in principle the option to distribute its bequest already before the own death and saves in such a way sometimes a will setting up.

Gifts thus enable the implementation of one’s own last will and testament already during one’s lifetime. Those who, instead of making gifts during their lifetime, would prefer to have intestate succession take effect or draw up an inheritance contract should consult a lawyer for inheritance law to find out about their options.

Infographic avoiding gift tax

Avoiding gift tax – these are your options

There are several possibilities to avoid the gift tax. These possibilities for the gift tax evasion are legal, can be used thus without bad conscience. In the following we explain the most usual possibilities, if they would like to avoid the gift tax.

Chain gift

You can legally avoid gift tax by making a so-called chain gift. If, for example, a father wants to give his son 800,000 euros, this gift is not tax-free: the tax-free amount of 400,000 euros that applies here would be tax-free, and 15 percent gift tax would have to be paid on the remaining 400,000 euros.

This gift tax can now be avoided by the father giving his son only the 400,000 euros that do not exceed the exemption amount. He first gives the remaining 400,000 euros to his wife, for whom an allowance of up to 500,000 euros can be exhausted. The wife then gives the 400,000 euros to the son, because she can also claim an allowance of 400,000 euros against the son. In this way, the son receives the full 800,000 euros as planned with a chain gift with which you can avoid gift tax.

Tax-free amount

Gift tax can also be avoided by regularly utilizing the tax-free allowance. The gift tax allowance may be used anew in full every 10 years. This means that if you start early enough, you can distribute an inheritance with gifts during your lifetime completely tax-free. If a grandmother wants to give her grandson 400,000 euros, for example, it makes sense to give 200,000 euros first to avoid gift tax, because 200,000 euros is the tax-free amount for gifts to grandchildren. After ten years, the other 200 000 euros can then be donated.

Particularly in the case of chain gifts, it is important to ensure that the gift is not contractually stipulated. If it is stipulated in a contract, it can be assumed that it is an abuse of the legal form in order to achieve a tax advantage not provided for by law. Avoiding gift tax with chain gifts is still allowed; however, chain gifts should not be contracted between the gift givers to save taxes.

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