GERMANY Law and Practice Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
Provisions that affect the core area of statutory divorce law are viewed particularly critically, such as the complete exclusion of post-marital maintenance or pension rights equalisation, or both if the claim for equalisation of accrued gains and the maintenance provisions are excluded. A possible invalidity must be asserted; it will only be determined by the court if one spouse sues for claims and invokes the invalidity. 5. Tax Treatment of Lifetime Transfers and Testamentary Dispositions 5.1 Lifetime Transfers In the case of lifetime transfers (eg, gifts or antici- pated succession), German law may impose gift tax, income tax (capital gains tax) and, in some cases, land transfer tax. Gift Tax Transfers of assets between living persons without consideration are generally subject to gift tax. The tax is payable upon execution of the gift. The amount is based on the value of the transferred assets, the fam - ily relationship (tax classes) and personal allowances. Exemption rules apply to certain transfers, such as the gift of the family home between spouses. Inheritance of the family home, on the other hand, is only taxable if the surviving spouse continues to live in the family home for the following ten years or only moves out for compelling reasons. This also applies to children, but only up to 200 square metres, and if they also move in after the death and live there for ten years. This rule is particularly unrealistic in cases where there are several children. Income Tax (Capital Gains Tax) Capital gains tax (in particular under Section 23 of the Income Tax Act) is only payable on transfers for consideration – ie, when the transferee provides con- sideration. In the case of gifts, there is no capital gain and therefore no income tax liability for the donor. However, if a property or other asset is transferred for consideration within the speculation period (eg, ten years for real estate), the gain is taxable. In the case of mixed gifts (partly for consideration, partly free of charge), the part for consideration may
be subject to income tax, and the part free of charge may be subject to gift tax. Land Transfer Tax Land transfer tax is generally payable on the trans- fer of land. However, gifts between living persons are exempt from land transfer tax if they are subject to gift tax (Section 3, No 2 of the German Real Estate Transfer Tax Act; Grunderwerbsteuergesetz – GrEStG). In the case of mixed gifts, the part for which consid- eration is paid is subject to land transfer tax, while the part for which no consideration is paid is subject to gift tax. The sale of real estate between spouses or close relatives may also be exempt from land transfer tax. 5.2 Testamentary Dispositions For income tax purposes, the so-called footsteps the- ory applies to transfers upon death: the heir follows in the footsteps of the deceased with regard to tax conditions (in particular acquisition costs and date of acquisition) – ie, there is no fictitious new purchase at market value on the date of death, but the heir con- tinues to use the tax values of the deceased. This means, in particular, that if the heir subsequently sells the asset, the acquisition costs and date of acquisition of the deceased remain decisive for the calculation of any capital gains, so that the capital gains may be higher. The footprint theory is thus a central principle for avoid- ing double taxation of increases in value: increases in value that have already occurred for the deceased are not taxed again for the heir as a fictitious capital gain.
6. Lifetime Succession Planning Mechanisms 6.1 Common Planning Techniques
In Germany, lifetime succession planning ( vor- weggenommene Erbfolge ) is commonly used to trans- fer assets before death in order to reduce inheritance tax exposure, maintain control over family assets and structure ownership transitions smoothly. The most frequently used mechanisms combine civil law instru- ments, tax allowances and contractual arrangements. The following structures are typical.
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