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Planning a gift or inheritance of real estate? The current changes in property valuation can significantly affect your tax burden. Find out how to make the most of allowances and save taxes through clever strategies. Need individual advice? Contact us for a non-binding initial consultation.
The international consideration of property prices is crucial to identify investment opportunities and better assess the tax implications of a donation in a global context.
The Annual Tax Act 2022 has significantly changed the valuation of real estate for gift tax purposes. An independent valuation is often advisable to obtain a realistic assessment of the property's value and potentially reduce the tax burden by up to 15%.
Take advantage of allowances, exemptions, and structuring options such as usufruct, real estate companies, and chain gifting to reduce gift tax and optimally transfer your assets.
The gift tax is an important aspect when transferring real estate, especially when it comes to international property prices. It not only affects the direct gifting of property but also indirect transfers, such as through transferring shares in real estate companies. A fundamental understanding of the gift tax helps you minimise your tax burden and optimally transfer your assets. The Valuation Nuances are crucial in this context.
The relevance of international consideration of property prices arises from increasing globalisation and the associated mobility of assets. Property owners are increasingly investing in foreign real estate, which increases the complexity of the gift tax. It is therefore essential to be informed about the tax frameworks in different countries to avoid double taxation and to take advantage of international tax agreements. Our page on the factors of property valuation offers an initial orientation for this purpose.
The Annual Tax Act 2022 (JStG 2022) has brought significant changes in the valuation of real estate for gift tax purposes. These changes aim to align the real estate valuation more closely with market values, impacting the income and cost approach in particular. It is crucial to understand these innovations to properly assess their tax implications. The adjustment of real estate valuation from 2023 potentially leads to a higher tax burden.
The revaluation from 2023 results in allowances being exhausted more quickly, which is particularly relevant for high-value properties. The tax authority uses standardized valuation methods, which may not account for all factors affecting value, such as location, equipment, and property condition. Therefore, an independent valuation is often advisable to get a realistic assessment of the property value. The valuation discrepancies should therefore be noted.
Valuation Methods in Detail
The valuation of real estate for gift tax is generally carried out using the comparative, income, or cost approach. The comparative method is based on the sale prices of similar properties in the area. The income method is mainly applied to rented properties and considers the achievable rental income. The cost method determines the property's value based on the construction costs minus depreciation. The Annual Tax Act 2022 has included adjustments in all three methods, which must be taken into account. The Annual Tax Act 2022 (JStG 2022) Impact is of great importance here.
Adjustment to Regional Comparison Factors
With the comparative method, it is important to consider regional comparison factors determined by the appraisal committees. These factors can vary greatly depending on the property's location and nature. Therefore, a precise analysis of regional conditions is essential to obtain a realistic valuation. The model conformity and valuation data should be considered here.
New Calculations of Management Costs and Land Capitalization Rates
The income method was adjusted by the JStG 2022 in terms of calculating management costs and land capitalization rates. Management costs are now determined based on actual administrative and maintenance costs as well as the risk of rental losses, rather than being set as a percentage of annual rent. The land capitalization rates were also adjusted to reflect current market conditions. The income value method updates are of great importance here.
Regional Factors and Depreciation Factors
The cost method now considers a regional factor to account for regional differences in construction costs. Additionally, a depreciation factor is applied, which takes into account the property’s loss of value due to its age. These factors can significantly influence the valuation and should be carefully examined. The real value method and regional factors should be considered here.
Model conformity according to § 177 para. 3 BewG requires the use of the same models and approaches as those applied by the appraisal committees. This ensures that the valuation is traceable and comparable. The reference date principle according to § 177 para. 2 BewG states that the valuation must be based on the conditions at the date of the gift. However, it is possible to demonstrate a lower fair market value according to § 198 BewG, for example, through an expert opinion or a recent sale price. The proof of lower fair market value is highly significant here.
The gift tax offers various allowances and exemptions that make it possible to significantly reduce the tax burden. The amount of the allowances depends on the degree of kinship between the donor and the recipient. Spouses and children have the highest allowances, while more distant relatives have lower allowances. It is important to make optimal use of these allowances to minimise the gift tax. The allowances vs. revaluation should be noted here.
The family home exemption according to § 13 paragraph 1 No. 4a ErbStG allows a self-used family home to be transferred tax-free to the spouse or civil partner. However, this exemption only applies under certain conditions, such as the donor must continue to live in the property. The Family Home Exemption (§ 13 paragraph 1 No. 4a ErbStG) is of great importance here.
Allowances and Tax Brackets
The allowances and tax brackets are regulated in the Inheritance and Gift Tax Act (ErbStG). The closer the relationship, the higher the allowance and the lower the tax bracket. This means that gifts to spouses and children are more favourably taxed than gifts to more distant relatives or third parties. The Allowances and Tax Bracket should be noted here.
Definition of the Family Home
The family home is the main residence of the donor and his family. It must be a self-used property owned by the donor. A transfer of the family home to the spouse or civil partner is tax-free under certain conditions. The Definition of the Family Home (Main Residence) is of great importance here.
Transfer Before Divorce
A transfer of the family home before divorce can offer tax advantages, as the family home exemption also applies to transfers during a divorce. However, it is important to check the exact conditions to ensure that the exemption actually applies. The Transfer Before Divorce should be noted here.
Family Homes in Asset Management Partnerships
If the family home is held in an asset management partnership (GbR, KG), the family home exemption may not apply under certain circumstances. It is therefore advisable to review the tax implications of such a setup in advance. The Family Homes in Asset Management Partnerships (GbR, KG) should be noted here.
The 10% revaluation discount for rented residential property according to § 13d paragraph 1 ErbStG allows the value of a rented residential property to be reduced by 10%. This leads to a lower gift tax. However, it is important to meet the exact conditions for this discount. The Rental Property Discount is of great importance here.
There are various ways to design a gift to reduce inheritance tax. One option is to establish a usufruct or a right of residence in favour of the donor. This reduces the value of the gift since the recipient can only fully utilise the property after the donor's death. Usufruct Planning is of great importance here.
Another option is the use of real estate companies for tax optimisation. By transferring shares in a real estate company, the gift tax exemptions can be better utilised. Additionally, a split of business operations can bring tax advantages. The Business Asset Implications should be considered in this context.
Tax Benefits through Reservation
By reserving a usufruct or right of residence, the value of the gift is reduced since the recipient can only fully utilise the property after the donor's death. The value of the usufruct or right of residence is calculated based on the donor's age, life expectancy, and potential rental income. Usufruct Planning is of great importance here.
Calculation of Capital Value Deduction
The capital value deduction is calculated based on the donor's age, life expectancy, and potential rental income. The older the donor, the smaller the capital value deduction. It is therefore advisable to plan the gift early on to optimise the capital value deduction. Usufruct Planning is of great importance here.
Illustration of Tax Benefit
An example illustrating the tax benefit: A 60-year-old donor transfers a rented property with an annual usufruct value of 10,000 euros. The capital value of the usufruct amounts to 175,000 euros (annual value x multiplier according to the Valuation Act). This amount is deducted from the value of the gift, resulting in a lower gift tax. Usufruct Planning is of great importance here.
Distinguishing between productive and administrative assets is important since productive assets are tax-favoured. Administrative assets, on the other hand, are fully taxed. It is advisable to structure properties so that they qualify as productive assets. The Business Asset Implications should be considered in this context.
A chain gifting strategy for grandchildren can be a sensible method to reduce gift tax. In this approach, grandparents first give to their children, who then pass on the assets to the grandchildren. This can provide tax advantages since children have higher allowances than grandchildren. The Chain Gifting should be considered in this context.
For gifts of real estate, no land acquisition tax is generally incurred, as these are exempt under § 3 GrEStG. This is intended to avoid double taxation with the gift tax. However, there are exceptions where land acquisition tax applies, for example in the case of mixed gifts or gifts with conditions. The land acquisition tax exemption for gifts is of great importance in this context.
Another way to avoid land acquisition tax is to establish a family pool. Here, real estate is contributed to a family company, and shares in the company are then given away. This can bring tax advantages, as the transfer of company shares is not subject to land acquisition tax under certain conditions. The tax planning opportunities should be considered in this regard.
Effects on Land Acquisition Tax
In the case of mixed gifts, where part of the value is considered as a purchase price and part as a gift, the purchase price portion is subject to land acquisition tax, while the gift portion is subject to gift tax. It is therefore important to carefully check the allocation to minimize the tax burden. The mixed gifts should be considered in this regard.
Gifts with conditions, particularly with a usufruct reservation, can trigger land acquisition tax. The value of the condition (capitalized value of the usufruct) is regarded as consideration and is subject to land acquisition tax. The calculation is based on the annual value multiplied by a factor from a BMF table. The gifts with conditions (usufruct) should be considered in this regard.
When transferring shares in real estate companies (GbR, KG, GmbH), land acquisition tax liabilities may arise, especially if holding periods and participation limits are not observed or the 90% threshold is exceeded. The real estate in corporate assets (share deal) should be considered in this regard.
§ 3 GrEStG Nos. 4 to 6 provides exemptions for spouses, ex-spouses (in the context of divorce), and relatives in direct line (children, grandchildren, stepchildren), even if no tax-free gift exists. The personal exemptions for family members should be considered in this regard.
The process of filing a gift tax return begins with an informal notification to the tax office in accordance with § 30 ErbStG. This notification must be made within three months of the gift, unless the gift was notarised. Following the notification, the tax office's valuation process takes place, during which the value of the property is determined. It is important to monitor this valuation process critically and appeal if the value has been set too high. The Gift Tax Return Process is of great importance in this regard.
In certain cases, it is possible to defer the gift tax, for instance, if the recipient would have to sell the property to pay the tax. The conditions for deferral are regulated in § 28 ErbStG. It is advisable to find out about deferral options at an early stage and to possibly submit an application. The Tax Deferral (Stundung) Options should be considered here.
The Informal Notification
The informal notification to the tax office in accordance with § 30 ErbStG is the first step in the gift tax procedure. It serves to inform the tax office about the gift and to initiate the valuation process. The notification should contain all relevant information, such as the names and addresses of the donor and recipient, the subject of the gift, and the time of the gift. The Gift Tax Return Process is of great importance in this regard.
The valuation process of the tax office is a crucial step in the gift tax procedure. The tax office determines the value of the property based on the aforementioned valuation methods. It is important to critically accompany this valuation process and lodge an objection if the value has been set too high. The Gift Tax Return Process is of great importance in this regard.
There are various official forms used in the gift tax procedure. These include, for example, the form for the gift tax return and the form for applying for a deferral of the gift tax. It is important to use the correct forms and to complete them fully and correctly. The Gift Tax Return Process is of great importance in this regard.
The conditions for a deferral are regulated in § 28 ErbStG. Accordingly, the gift tax can be deferred if the recipient cannot pay the tax without significant hardship. This applies, for example, if the recipient would have to sell the property to pay the tax. It is advisable to find out about deferral options at an early stage and to possibly submit an application. The Tax Deferral (Stundung) Options should be considered here.
Selling the property can potentially bring tax advantages, for example, if it creates a higher depreciation base. Therefore, it is advisable to carefully weigh the pros and cons of selling and gifting. The Sale vs. Gift Analysis is of great importance in this regard.
In addition to gift tax, land transfer tax and income tax may also be due. This is the case, for example, if the gift is made with conditions or if the property is sold within a certain period. Therefore, it is important to be fully informed about the tax implications of the gift. The Sale vs. Gift Analysis is of great importance in this regard.
The international property prices vary significantly depending on the country and region. Factors such as economic growth, population development, political stability, and social aspects influence the property prices. Comparing property prices across different countries can help identify investment opportunities and better assess the tax implications of a gift in the international context. It's important to know the tax regulations for property gifts in different countries to avoid double taxation and to take advantage of international tax treaties. Calculating property costs can be helpful in this regard.
The tax regulations for property gifts in the international context are complex and diverse. Each country has its own laws and regulations that need to be considered. It is advisable to seek advice from a tax consultant or real estate specialist who is familiar with the international aspects of gift tax. An analysis of standard land values can serve as an important basis here.
Factors Influencing Property Prices
The economic situation of a country has a major impact on property prices. In countries with strong economic growth, property prices generally increase, while in countries with economic problems, they can decrease. Population development also plays a role. In areas with strong population growth, the demand for residential space increases, leading to higher property prices. Property valuation is of great importance here.
The political stability of a country is another crucial factor. In countries with political uncertainty, real estate investments are riskier, which can negatively affect property prices. Social aspects such as crime rates and quality of life also influence property prices. Land prices are an important indicator in this context.
The tax regulations for property gifts in the international context are complex and diverse. Each country has its own laws and regulations that need to be considered. It is advisable to seek advice from a tax consultant or real estate specialist who is familiar with the international aspects of gift tax. Property valuation is of great importance here.
Property valuation and gift tax face various challenges. The constant changes in laws and regulations make it difficult to keep track. Moreover, the valuation methods are complex and require a high level of expertise. Therefore, it is important to continuously educate oneself and seek advice from experts. The Valuation Shift is of great significance in this context.
Future developments in the field of gift tax and property valuation are hard to predict. However, it is expected that digitalisation and automation will play an increasingly important role. Additionally, the international aspects of gift tax will gain significance. Therefore, it is important to prepare early for these developments and to be ready accordingly. The Potential for Higher Tax Burden should be considered in this regard.
Continuous Education
Continuous education is essential for tax advisors and property specialists to keep track of the constant changes in laws and regulations. There are numerous seminars, courses, and professional journals that deal with the topic of gift tax and property valuation. It is advisable to take advantage of these opportunities to keep one’s knowledge up to date. The Mitigation Strategy is of great importance in this context.
The current challenges in property valuation and gift tax mainly lie in the complexity of valuation methods and the constant changes in laws and regulations. Therefore, it is important to seek advice from experts and to continuously educate oneself. The Actionable Recommendation should be considered in this regard.
Future developments in the field of gift tax and property valuation are hard to predict. However, it is expected that digitalisation and automation will play an increasingly important role. Additionally, the international aspects of gift tax will gain significance. Therefore, it is important to prepare early for these developments and to be ready accordingly. The Expert Insight is of great significance in this context.
The gift tax and the associated valuation of real estate are complex subjects that require careful planning and consultation. The current changes in the Annual Tax Act 2022, as well as the various options available to reduce the tax burden, make it essential to be thoroughly informed and to seek expert support. This is the only way you can ensure that you optimally transfer your assets and minimize the tax burden.
Take advantage of the opportunity to receive advice from Auctoa. We offer you a comprehensive analysis of your individual situation and work with you to develop a tailored strategy for reducing gift tax. Contact us today to arrange a non-binding consultation. Register for free and receive an immediate initial assessment of the renovation needs of your property. Contact us!
The Haufe portal provides information on the adjustment of property valuation from 2023 and its impact on tax burden.
Rose & Partner offers detailed information on inheritance and gift tax regarding real estate, houses, and apartments.
The Federal Ministry of Finance provides access to the Inheritance Tax and Gift Tax Law (ErbStG).
The Federal Ministry of Finance offers access to the Valuation Act (BewG).
The Federal Statistical Office (Destatis) released a press release on inherited and gifted assets in the year 2022.
FGvW analyses the adjustment of property valuation as of 1 January 2023 in tax law.
What factors influence international land prices?
International land prices are influenced by factors such as economic growth, population trends, political stability, and social aspects. A detailed comparison is crucial for making informed decisions.
How does the Annual Tax Act 2022 affect gift tax on real estate?
The Annual Tax Act 2022 (JStG 2022) has significantly changed the valuation of real estate for gift tax, particularly through adjustments in the income and cost value methods. This potentially leads to a higher tax burden.
What valuation methods are used for gift tax on real estate?
The valuation is usually conducted using the comparable, income, or cost value methods. The Annual Tax Act 2022 has introduced adjustments in all three methods that must be taken into account.
How can exemptions and allowances be optimally utilised for gift tax?
The gift tax offers various allowances and exemptions, the amount of which depends on the degree of kinship. The family home exemption according to § 13 Paragraph 1 No. 4a ErbStG allows a tax-free transfer under certain conditions.
What planning options are available to reduce gift tax?
Planning options include establishing a usufruct or right of residence, using property companies for tax optimization, and applying chain gifting for grandchildren.
Does property transfer tax apply to gifts of real estate?
Generally, no property transfer tax applies to gifts of real estate, as they are exempt under § 3 GrEStG. Exceptions apply to mixed gifts or gifts with conditions.
What is the process for submitting a gift tax return?
The process begins with an informal notification to the tax office according to § 30 ErbStG. After the notification, the valuation process by the tax office occurs, which should be critically monitored.
What deferral possibilities exist for gift tax?
In certain cases, there is the possibility to defer the gift tax, for example, if the recipient would have to sell the property to pay the tax. The conditions are regulated in § 28 ErbStG.
