When do I need to pay gift tax?
All kinds of assets and property given as a gift are subject to gift tax – not only amounts of money but also securities, fund units, shares in a housing company, real estate, cars and even animals and valuables.
The person receiving the gift is the party accountable for gift tax. You must pay gift tax, if
- you receive a gift worth €5,000 or more
- you receive several gifts in the course of 3 years from one donor, and the value of the gifts is €5,000 or more
The person receiving the gift must also complete a gift tax return. More instructions for filing and paying
What is the correct way to calculate the gift tax for multiple gifts?
The base is the combined total value of the gifts received from one donor during a 3-year period.
If you receive multiple gifts from one donor in the course of 3 years, you must complete a gift tax return at the time when the combined value of the gifts goes over the threshold of €5,000. At this stage, you have to complete the return although the value of the latest single gift would stay below the threshold.
Example: The father gave €4,000 in cash to his daughter on 3 January 2019. Later, on 1 May 2020, he gave her another cash gift; this time, the sum was €2,000. The combined value is €6,000. Because the 5,000-euro threshold is now reached, the daughter submits a gift tax return on the gift she received on 1 May 2020 and she also fills in information on the earlier gift that she received on 3 January 2019.
She must pay gift tax according to tax bracket 1 on €6,000, the combined value of the first and second gifts. The amount to pay is €180.
If within a 3-year period, the recipient has already paid gift tax on a gift received at an earlier date, the Tax Administration will subtract that gift tax from the calculation for the new tax.
Example: First, the father gives his daughter an apartment worth €50,000.00. The gift tax imposed on this gift is €4,200.00. After two years, the father makes his daughter another gift worth €50,000.00: a summerhouse.
In this case, the first gift’s value is added to the second gift’s value. This way, the base for the gift tax equals €100,000.00. The amount to pay is €10,100.00 (tax bracket 1). However, 4,200.00 euros, the previously imposed gift tax, is subtracted. As a result, the amount to pay on the second gift is €5,900.00.
If the date when a new gift is made is the same calendar date, 3 years later, as the date of the earlier gift, the two gifts are not put together – this means that if a gift was given 15 July 2017, for example, and on 15 July 2020, there is a new gift, the first gift’s value is not added to the second gift’s value.
Frequently asked questions
As a donor, you can give a person a tax-exempt gift, worth less than €5,000, every 3 years.
The above threshold concerns the donor. This means that one donor can make more than one tax-exempt gifts as long as the threshold is not exceeded, or as long as the recipient is another person.
Example: On 1 January 2021, the mother and father of a family with 2 children make them 2 gifts of €4,999. This way, both children receive €9,998. Both parents have given €4,999 twice. The next time when both parents are able to make 2 tax-exempt gifts of €4,999 to both their children will be 1 January 2024.
Because no gift tax is imposed in this case, the gift recipient does not have to file a return unless so requested by the Tax Administration. However, sometimes it is advisable that you should also submit a gift tax return when you receive a gift of smaller value. If you were to sell the asset later, you could then use the confirmed gift tax value of the asset as the acquisition cost.
Moreover, if you make a gift of household effects or donate money for purposes of education, upbringing and maintenance of the gift recipient, your gift may be exempted from tax. Read more about gifts of household effects and gifts for upbringing and education.
If you give a gift to your natural heir – to your child or grandchild, etc. – the tax authorities usually consider such a gift as an advancement given to an heir before the parent’s death.
This way, advancements are gifts, which makes it necessary for the recipient to pay gift tax. If a gift has been defined as an advancement, it will be accounted for when the distribution of the estate is carried out and this also means that it affects the assessment of inheritance tax.
However, gifts are usually not considered advancements in the following circumstances:
- All natural heirs receive gifts of the same value.
- There is only one natural heir, and he or she receives a gift.
- The donor has set a specific condition, which may have been recorded in writing in the deed of gift, that the gift is not to be deemed as an advancement.
However, if the gift had not been designated as an advancement, the gift will be accounted for in the assessment of inheritance taxes if the gift was received maximally 3 years prior to the donor’s date of death.
Please note: If you sell property to a natural heir for a low price, as a gift-like sale, it may later be treated as a gift, and valuated again during the distribution of the estate that you leave behind. However, if the selling price is the same as the property’s fair market value, the sale cannot be deemed as an advancement.
Gifts between spouses are subject to the same tax treatment as other gifts. If the combined total value of the gifts received in the course of 3 years is €5,000 or more, you must pay gift tax. Although the donor and recipient are married to each other, they cannot transfer property free of tax.
The house or apartment that you buy together as a couple must be owned by the two of you in proportions that reflect the amounts of money that each of you has paid.
If the ownership is registered as 50-50 but in reality, only one of the spouses spends money when the home is bought, and later pays back the entire home loan, the 50% ownership registered to the other spouse is treated as a taxable gift.
Making a deposit into the couple’s shared bank account does not transfer the ownership to the other spouse. It is therefore not regarded as gift-giving.
What would give rise to gift tax is a situation where money in the shared account is spent for the benefit of one spouse based on a reason other than liability to provide maintenance. Such spending takes place, for example, if one of the spouses withdraws cash from the shared bank account and uses it to buy assets for personal use.
In other words, it is allowed for both spouses to transfer money into a shared bank account on the condition that the money will actually be used for the benefit of both spouses.
When you borrow money, it may be treated as a gift if the circumstances give reason to believe that you never were expected to pay it back.
Lenders are not required to collect interest on a loan. This means that the mere fact that no interest is paid does not turn a loan into a gift. However, there must be a plan for how the loan is to be repaid, and you must be able to prove that you actually made some repayments to the lender. The loan amount and the repayment plan must be realistic – i.e. in correct proportion to the borrower’s financial standing. For purposes of gift taxation, a loan may be deemed a gift if the lender and the borrower agree that the latter will receive tax-exempt gifts in order to repay the loan with them (for example, receive gifts of just below €5,000 with 3-year intervals).
Children under 18 are normally considered to be unable to pay back loans. If a child has no income that would cover the repayments, a gift from parents is regarded as a gift subject to gift tax.
If you receive alcohol or tobacco as gifts from within the EU, the amount and category of the products determine whether or not you must pay excise duty on them. Read more on excise duty.