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When my mother wired me €25,000 for furnishing my apartment, I had no idea whether I'd have to pay tax on it. The answer: no, completely tax-free. In Germany, the gift tax allowance between parents and children is €400,000 per parent, renewable every ten years. Anyone who understands the system can legally transfer six-figure sums tax-free over the decades.

German Gift Tax Allowance: The Basics Everyone Should Know

The gift tax allowance depends on the degree of kinship between giver and recipient. The closer the relationship, the higher the allowance. The German Inheritance and Gift Tax Act (ErbStG) lays this out very specifically in section 16.

Children may receive €400,000 tax-free from each parent, so theoretically €800,000 from two parents. Grandchildren get an allowance of €200,000 from grandparents, and spouses can even give each other €500,000. These amounts apply per person and per ten-year period.

Allowances at a Glance

So you don't have to memorize the key figures, here are the current allowances under section 16 ErbStG:

  • Spouses and registered civil partners: €500,000
  • Children and stepchildren: €400,000 per parent
  • Grandchildren: €200,000 per grandparent
  • Parents and grandparents in case of inheritance (not gifts): €100,000
  • All other persons, such as unmarried partners: €20,000

Giving Money Tax-Free: How the Ten-Year Rule Works

The gift tax allowance renews itself automatically every ten years. Concretely, that means: if your father gives you €400,000 today, he can transfer another €400,000 to you tax-free in ten years. Anyone who plans early can pass on considerably more wealth over two or three ten-year cycles than it seems at first glance.

In my own financial planning, I worked through this with my grandmother. She wanted to give me a total of €350,000, split into two installments eleven years apart, just to be on the safe side. That way everything stays within the grandparent-to-grandchild allowance of €200,000 per period.

Important here: the period starts on the date of the actual gift, not with the signing of a contract or an announcement. Anyone who starts ten-year planning early saves considerable sums in gift tax in the long run.

Reporting a Gift to the Tax Office: These Are Your Obligations

Mother and daughter discussing a monetary gift together at the kitchen table

Even if a gift stays below the allowance, there is in principle a duty to report it. Under section 30 ErbStG, every gift must be reported to the responsible tax office within three months. This applies regardless of whether any tax ends up being due.

In practice, many tax offices don't formally react to smaller amounts below the allowance, but that doesn't automatically remove the reporting obligation. For larger sums, such as a property transfer or a six-figure cash gift, the tax office usually also demands a gift tax return. The Federal Central Tax Office provides detailed information at bzst.de.

Anyone who forgets to report risks problems later, for instance if the tax office retroactively checks which gifts were made in the past ten years when there's an inheritance. Clean documentation with date, amount and family relationship saves a lot of trouble.

Parent-Child Allowance: What Happens If You Exceed It

If a gift exceeds the allowance, only the excess amount is taxed, not the entire sum. For children and parents, the most favorable tax class I applies, with tax rates between 7 and 30 percent, depending on the size of the excess amount.

An example: if your father gives you €450,000, €400,000 stays tax-free. The remaining €50,000 is taxed at 11 percent, which would be €5,500 in gift tax. Anyone planning such sums should think early about spreading the gift over several ten-year periods, as also described in the article on gifts during your lifetime.

Grandparent-Grandchild Allowance and Other Family Constellations

Grandchildren benefit from the gift tax allowance of €200,000 per grandparent. With four grandparents, a grandchild could theoretically receive up to €800,000 tax-free over a ten-year period, provided each grandparent uses up their own allowance separately.

It gets trickier with children-in-law or unmarried partners. Here, often only the low allowance of €20,000 applies, which can quickly lead to tax liability, especially with larger cash gifts within the family. Getting around this by treating your own partner as a direct child doesn't work legally; the tax office examines such constructions closely.

Practical Tips for Using the Gift Tax Allowance

Grandmother handing her granddaughter a monetary gift in the garden

Anyone planning a larger monetary gift shouldn't wait until afterwards to think about taxes. Consulting a tax advisor early is especially worthwhile for sums over €100,000.

  • Document gifts in writing, with date, amount and purpose
  • With multiple givers, calculate the allowances individually rather than together
  • Spread larger sums across several ten-year periods early on
  • Don't forget to report to the tax office within the three-month deadline
  • For real estate, also have the market value clarified through an appraisal

Anyone dealing more generally with smart financial planning within the family will also find practical approaches in the article on wedding money gifts for putting larger sums to good use.

Frequently Asked Questions About the Gift Tax Allowance

How high is the gift tax allowance between parents and children?

Children may receive €400,000 tax-free from each parent, so up to €800,000 from both parents together within ten years.

How often can I use the gift allowance every ten years?

The allowance renews itself automatically after every full ten-year period, theoretically as often as you like over an entire lifetime.

Do I have to report every monetary gift to the tax office?

Yes, under section 30 ErbStG there is in principle a duty to report within three months, even if the gift stays below the allowance.

How high is the allowance for gifts from grandparents to grandchildren?

Grandchildren can receive €200,000 tax-free from each grandparent, renewable every ten years for each grandparent separately.

What happens if a gift exceeds the allowance?

Only the excess amount is taxed, for children and parents at rates between 7 and 30 percent depending on the amount.

Conclusion: Using the Gift Tax Allowance Smartly

The gift tax allowance is one of the most effective tools for transferring wealth within the family legally and tax-free. Anyone who knows the ten-year rule and plans early can pass on considerable sums completely tax-free over the decades. What matters is clean documentation and timely reporting to the tax office so there are no nasty surprises later. If you're unsure how best to spread a larger gift across several periods, bring in a tax advisor early and work through your own family planning in concrete numbers.