Exemption (Gift)

The gift tax exemption is the tax-free amount up to which a gift can be transferred to a specific person within a ten-year period without incurring gift tax. Transfers of real estate assets to children, spouses, or other relatives often utilize these exemptions to avoid or significantly reduce gift tax. The amount of the exemption depends on the relationship between the donor and the recipient.

Overview of Gift Tax Exemptions

The Inheritance and Gift Tax Act (ErbStG) provides for the following personal exemptions (§ 16 ErbStG), which can be used again every ten years:

Relationship to the donor	Exemption amount
Spouse / registered partner	500,000 euros
Children and stepchildren	400,000 euros
Grandchildren	200,000 euros
Parents and grandparents (only for gifts)	20,000 euros
Siblings, nieces, nephews	20,000 euros
Non-relatives	20,000 euros

For gifts of real estate, the tax assessment basis is the taxable property value determined by the tax office in accordance with the Valuation Act.

The Ten-Year Rule: Gifts in Installments

An important feature: The tax-free allowances can be utilized again every ten years. Parents can therefore theoretically transfer up to 400,000 euros tax-free to their child every ten years. If both parents are joint donors, this amount doubles to 800,000 euros per child per ten-year period. For the transfer of higher-value real estate, a staggered gift in installments may therefore be advisable-however, the ten-year interval between gifts must be strictly observed, as the tax office aggregates all gifts within the ten-year period.

Important: What matters is not the date of the notarial deed, but the date on which the gift becomes effective under civil law, i.e., generally the date of the land registry transfer. If the first gift was made in 2015, the next tax-free gift can be made no earlier than 2025. Anyone who inadvertently fails to meet this deadline must expect the entire transfer to be subject to back taxes.

Special Provisions for Real Estate Gifts

Additional regulations apply to real estate gifts:

• Owner-occupied residential property: If a parent gifts a property to a child who subsequently lives in it themselves, the gift tax is fully waived under certain conditions (Section 13(1)(4b) ErbStG).
• Retention of usufruct: The donor may reserve a right of usufruct; the capital value of the usufruct reduces the taxable gift value. This strategy is particularly common when parents transfer their property but wish to continue living in it themselves or receive the rental income.
• Gift subject to a condition: If the donor transfers the property in exchange for the payment of an annuity or care services, the capital value of the consideration reduces the tax burden. This is an attractive option when transferring property to children who simultaneously assume care obligations.

Valuation of the property for gift tax purposes

The tax office determines the property value in accordance with the Valuation Act (BewG). Depending on the type of property, different methods are used: the comparative value method for single-family homes and condominiums, the income approach for investment properties, and the cost approach for special-purpose properties. The value determined by the authorities may differ from the actual market value.

Owners have the right to prove a lower market value through an expert appraisal (Section 198 BewG). If this appraised value is lower than the tax office’s valuation, the tax office is obligated to use the lower value for tax assessment. Such a counter-appraisal is particularly worthwhile for older properties or properties with a significant backlog of renovations, as it can significantly reduce the tax base and thus the gift tax due.

Gift Tax Rates by Tax Class

If the value of the gift exceeds the personal exemption, the excess is taxed at the following rates:

Value of the taxable acquisition	Tax Class I (Children)	Tax Class II (Siblings)	Tax Class III (Non-relatives)
up to 75,000 euros	7%	15%	30%
up to 300,000 euros	11%	20%	30%
up to 600,000 euros	15%	25%	30%
up to 6,000,000 euros	19%	30%	30%
over 6,000,000 euros	23-30%	35%	50%

This progressive tax structure illustrates why an early, staggered transfer of real estate assets is so advantageous: Someone who transfers a property worth 1.2 million euros to a child in a single transaction pays taxes on 800,000 euros-whereas two staggered transfers ten years apart can remain entirely tax-free.

Practical Tip for Property Owners in Nuremberg and Franconia

In the Nuremberg metropolitan region, real estate values have risen significantly in recent years. Many owners who wish to transfer their house or apartment to the next generation are surprised at how quickly the tax-free allowances are exhausted. A single-family home in sought-after Nuremberg neighborhoods such as Erlenstegen, Mögeldorf, or Ziegelstein now has market values ranging from 700,000 to over 1,000,000 euros-which is 1.75 to 2.5 times the tax-free allowance for children.

We recommend starting the planning process early-ideally ten to twenty years before the desired transfer date-in consultation with a tax advisor and notary to legally minimize the tax burden as effectively as possible. Particularly effective is the combination of a reservation of usufruct (which significantly reduces the property value for gift tax purposes) and the 10-year period strategy. In a specific advisory case, we were able to achieve gift tax savings of several tens of thousands of euros for a Nuremberg property owner through such a combination. A current real estate appraisal by us always forms the necessary starting point for tax planning.

Frequently Asked Questions

What happens if the gift value exceeds the tax-free allowance?

The amount exceeding the tax-free allowance is subject to gift tax. The tax rate depends on the tax bracket and the amount of the taxable acquisition and ranges from 7 to 30 percent for children. Early planning with staggered gifts can significantly reduce the tax burden.

Do I have to report a gift to the tax office?

Yes. Gifts must be reported to the competent tax office within three months (Section 30 of the Inheritance Tax Act). This applies regardless of whether taxes are due. For notarized gifts, the notary automatically files the report. For informal gifts (e.g., cash or bank transfers), the reporting obligation lies with the donor or the recipient themselves.

Can I gift real estate to my spouse tax-free?

Yes, tax-free up to a value of 500,000 euros every ten years. Furthermore, the gift of the family home used for personal residence to a spouse is fully exempt from gift tax under Section 13(1)(4a) of the German Inheritance Tax Act (ErbStG)-with no value limit. The spouse must then live in the property themselves; subsequent rental within ten years will result in retroactive taxation.

Is it worth obtaining a counter-appraisal if the tax office assesses the property value too high?

In many cases, yes. The tax office determines the property value using a standardized procedure that does not always adequately account for individual defects, a backlog of modernization, or special location characteristics. A counter-appraisal by a publicly appointed and sworn expert can significantly reduce the taxable value. The cost of the appraisal (typically 1,500 to 5,000 euros) often pays for itself even with relatively small tax savings.

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