Gift now, not later: reduce inheritance tax and keep control

The essentials at a glance

• By gifting early, you can use tax-free gift allowances of up to €500,000 (spouses) and €400,000 (children) per recipient, and reset them every ten years.

• If you plan to gift or bequeath a house, a notarised deed of gift is mandatory for the transfer.

• Gifts made within the ten years before death can trigger other heirs’ compulsory share supplement claim—the earlier you gift, the better.

• Every gift—whether cash, a house or land—must be reported to the tax office within three months.

• By reserving a usufruct (life interest) or a right of residence, you remain protected even after transferring your property.

Coordinate real estate gifts with future inheritance

As part of your estate planning, align lifetime gifts with the eventual succession. To this end, an equalisation clause is often included in the deed of gift. It specifies whether—and to what extent—the gift will be set off against the recipient’s future inheritance.

In a deed of gift, you can set tailored provisions. For example, you can agree that the value of the gifted property will be offset against the recipient’s statutory compulsory share on death. Alternatively, you can arrange an inheritance or compulsory-share waiver. Clawback rights are also essential elements: they allow the donor to reclaim the transferred assets—for instance, if the recipient dies before the donor or becomes insolvent.

The 10-year rule for property gifts

Gifts made within ten years before the donor’s death can trigger other heirs’ compulsory share supplement claim (section 2325 BGB). A sliding scale applies: in the first year before death, the gift is counted in full; with each subsequent year, the share is reduced by 10%. After ten years, the gift is disregarded when calculating the compulsory share. Plan your property gift as early as possible.

Property gifts between spouses

For gifts between spouses, a special rule applies: the 10-year rule does not apply. As long as the marriage exists, all gifts—including real estate transfers—are counted for the compulsory share supplement claim, no matter how long ago they were made. Because this can materially affect your joint estate plan, seek early legal advice.

Real estate gifts must be notarised

As a rule, gift agreements require notarial form. They can still become valid without notarisation if the gift is actually carried out—for example, by handing over the asset.

If you want to gift or bequeath a house, or gift a plot of land, an exception applies: transfers of real estate, land or corporate shares must be notarised.

When you transfer a property during your lifetime, you can protect yourself with a reserved usufruct or a right of residence. The usufruct is entered in the land register and secures your right to continue using the property or to receive rental income. It also reduces the taxable value of the gift.

Cash gifts before death

In addition to gifting real estate, you can also make cash gifts before death. This can be a smart way to support your children or spouse financially. Early gifting offers tax advantages, provided you observe deadlines and tax-free allowances.

For cash gifts made before death, the same allowances apply as for real estate gifts: €500,000 for spouses and €400,000 per child. These allowances reset every ten years. The gift must be reported to the relevant tax office within three months.

Important for recipients: receiving cash or a house as a gift

If you have received a house as a gift, you—the recipient—are responsible for notifying the tax office, regardless of whether the property’s value is below the allowance. The deadline is three months from the date of the gift. If you miss this deadline, the tax office can impose a fine.

Unless the donor has provided otherwise, a gift made before death may have to be set off against other heirs’ shares. To protect yourself, seek support from a notary. Also check whether the deed of gift includes clawback rights. These apply, for example, if the donor becomes insolvent.