Giving the gift of money at Christmas – and what the tax authorities need to know

Christmas is a time for giving presents, sometimes lavish ones: On average, Germans spend around 259 euros on presents, often including gifts of money. But what is the legal situation on giving money as a gift? When is the gifted money liable for tax?

Am I allowed to give any amount of money as a gift?

Yes, in principle, you are allowed to give money as a gift. You don’t need to worry if the amounts are small – your local tax office will only be interested if larger sums are involved.

However, according to tax law: you need to notify the tax office every time you gift someone money. The only exemption is for customary occasional gifts. The legislation does not, however, clearly define what these are. In practice, many tax offices use a benchmark amount of around 20,000 euros. If you intend to gift someone more than this amount, then you should register it with your local tax office just in case. If you are unsure, it’s worth checking with them as the rules may be interpreted differently from place to place.

What tax-free allowances apply when giving money as a gift? 

The reason for registering larger amounts given as gifts: Your local tax office will check whether any gift tax is due. How high your tax-free allowance is, depends on how closely you are related to the recipient of the gift. The closer the degree of kinship, the higher the tax-free allowance. The following allowances currently apply:

• Parents can gift each of their children or stepchildren up to 400,000 euros tax free.
• Married couples or registered civil partners can gift each other up to 500,000 euros tax free.
• Grandparents can gift their grandchildren up to 200,000 euros tax free.
• The tax-free allowance between siblings, divorced couples and friends is 20,000 euros.

Important to know: The tax-free allowance can be reused every ten years. Gifts between the same people within a period of ten years are added together.

For example: A mother gives her son 350,000 euros. Five years later, she gives him another 60,000 euros. So, in total, she gives him 310,000 euros, meaning she has exceeded the tax-free allowance by 10,000 euros. As a result, gift tax is due on this amount. However, once the ten-year period has expired, the full tax-free allowance can be used again.

So, if you plan for the long term and gift larger amounts in several instalments, you can save tax, not only at Christmas time.

Gifting money to children – what you should know

If you gift money to under-age children, remember: the money legally belongs to the child. Their parents look after the money in trust until their children are of legal age. They may not use it themselves unless it is for the benefit of the child – e.g. for an educational trip, for their driving licence or other larger purchases for the child.

Are you looking for an alternative to giving cash at Christmas time? Why not gift gold instead of money? Our German blog post on investing money when children start school lists a variety of savings options for children that can also be used on occasions such as Christmas.