When a property is inherited, the tax authorities demand their share. It can be more advantageous to transfer the house before the inheritance, i.e., to gift it. However, not everyone saves the same amount. Therefore, owners should know when and how gifting is worthwhile.
Germans inherited and received gifts totaling nearly €109 billion in 2016. Around a third of this was taxable, generating almost €7 billion in tax revenue for the state, according to the Federal Statistical Office. Estimates suggest that inherited and gifted assets will rise to €330 billion by 2020. Almost three-quarters of this is real estate.
Hannelore B. is 81 years old. She, too, is facing the question of what to do with her house. Living in her own home is becoming increasingly difficult. Climbing the stairs and keeping the house clean is getting more and more strenuous. She's considering moving into assisted living. But what will she do with the house then? She's always assumed her son Thomas would inherit it. But what will happen to it now?
A friend suggested she transfer the property to her son, essentially gifting it to him. She'd heard that heirs might be able to save on taxes this way. However, Hannelore was advised to consult a professional. She thought it was a good idea and discussed it with her son, Thomas. He then consulted a notary to determine if such a gift was possible. The notary explained the conditions under which a gift could be made. He told them that no taxes would be due if the house's value didn't exceed a certain amount. Now, Hannelore and Thomas just needed to know the house's value. But who actually determines that?
The notary explained to them that the local tax office is responsible for determining the property's value. However, the office doesn't take into account individual characteristics of the house, such as a highway running alongside it or a damp basement. He suggested that the value might be estimated higher than the actual market value. This could result in exceeding the tax-free allowance, and taxes would then be due. Therefore, he recommended that they both hire a real estate expert, such as a broker, to appraise the property. Such experts consider these details in their valuations.
Thomas then did some research online and found a trustworthy real estate agent. He commissioned the agent to conduct a property valuation. Thanks to his expertise, knowledge of the current real estate market, experience, and consideration of local market factors, the agent determined the value of the house. This revealed that Hannelore could gift the house to Thomas tax-free. Both are happy that the future of the house has been secured.
Do you have questions about inherited property or would you like to know what your property is worth? Contact us! We'd be happy to advise you.