Recipients must pay gift tax for an asset worth €5,000 or more received as a gift. This also concerns gifts received from the same donor during a three-year period if the aggregate value reaches €5,000 or goes above it. The gift tax return must be submitted to the Tax Administration within three months of receipt.
What kind of gifts are subject to gift tax?
All kinds of assets are subject to gift tax provided that the donor, recipient, or both live in Finland on the date when the gift is given. This way, the following are subject to gift tax: real estate and buildings, cars, boats, corporate stock, shares of a family company (i.e. a non-listed company), shares in a housing company, cash, an interest in an estate of a deceased person, a right of possession, a paid trip to a foreign country, and pet animals.
Getting a gift worth €5,000 or more
Gift tax must be paid if you receive a gift worth €5,000 (€4,000 before 1.1.2017) or more. If the gift is being given to you by multiple donors, the calculation of gift tax must be separate for each one of them.
Antti gave his daughter Liisa a gift worth €8,500. She pays tax on it under the first tax-bracket schedule. Gift tax for such a gift, given in 2017, is 380 euros.
If Antti and his wife Tiina were to give their daughter Liisa 7,500 euros paying for it 50-50, i.e. the gift given by each spouse would amount to €3,750, Liisa would not have to pay any gift tax on the two gifts.
If Antti and Tiina were to give Liisa 10,500 euros making the gift given by each spouse amount to €5,250, Liisa would have to pay gift tax on these two gifts under the first tax bracket. Gift tax under the first bracket on a gift worth €5,250 in 2017 equals €120. Liisa pays €240 all in all (€120 × 2).
Adding up the gifts received within three years
Gift recipients must pay tax on gifts worth €5,000 or more. This also concerns gifts received from the same donor during a three-year period if the aggregate value reaches €5,000 or goes above it.
The gifts you receive in three years from the same donor are added up even if they represent completely different types of assets and property.
On 19 January 2016, Antti gave Liisa, her daughter, a set of shares of a housing company worth €75,000 and Liisa paid the tax office €8,270 as first-bracket gift tax on it. Later, on 27 April 2016, Antti gave Liisa a unit of real estate worth €200,000.
Because the gifts come from the same donor within three years, you must add them up (€75,000 + €200,000 = €275,000). Gift tax under the first bracket on a gift worth €275,000 in 2016 equals €35,810. When we deduct Liisa's previous gift tax of €8,270 from it, the remaining amount for her to pay is €27,540.
If Antti had given Liisa the housing-company shares on 26 April 2013 or on an earlier date, no adding up with the second gift given 27 April 2016 would have been necessary. In that case, the second gift dated 27 April 2016 and worth €200,000 would have resulted in €25,770 tax.
When the circumstances require the adding up of the values of earlier gifts, the practice is to deduct any paid gift tax from the total gift tax, assessed on the added-up aggregate value.
On 1 January 2016, Antti gave Liisa a gift worth €5,000 on which she paid €180 gift tax under the first bracket. Later, on 8 April 2016, Antti gave Liisa another gift, worth €20,000. Because the gifts come from the same donor within three years, you add them up (€5,000 + €20,000 = €25,000). Gift tax under the first bracket on a gift worth €25,000 in 2016 equals €2,020. After deducting the €180 that Liisa paid recently the amount to pay now is €1,840.
The adding-up of the gifts received within three years must also include any gifts worth less than €5,000. This way, if you received such gifts and didn't file a gift tax return previously, you must fill in the ”Other gifts under €5,000 that you have received from the donor within the past three years” lines on the return form.
On 3 January 2013, Antti gave Liisa, his daughter, a gift of €1,500 cash. He additionally gave her €2,000 cash on 1 May 2015, and another €2,000 on 2 January 2016. Total value equals €5,500. This means that Liisa must file a gift tax return on the gift she received 2 January 2016. She must include the two earlier gifts dated 3 January 2013 and 1 May 2015 on the return. She must pay €220 gift tax on the total value (€5,500) on tax bracket 1.
Gift tax on an advance inheritance
If a valuable gift is given to a natural heir (a child, grandchild etc.), the tax authorities normally treat it as an advance inheritance (often referred to as advancement) unless the donor has expressly stated in the text of a gift deed or otherwise that it should not be regarded as an advance inheritance.
The time when gift tax must be paid on an advancement is when it is being received.
The tax treatments of advancements and gifts are different only when inheritance tax is assessed after the donor's death and when the assets to be inherited are distributed. In other words, gift tax must be paid on an advancement in the same way as on a gift. However, the tax authorities also take an advancement into consideration after the donor's death when assessing inheritance taxes.
Rules on gifts in the form of real estate and shares of a housing company
The only permissible way to give a gift consisting of real estate or housing-company shares is to give it in full - or to give a fractional part of it (such as ¼). In other words, you cannot make a gift that would correspond to a certain amount of money (such as €4,999).
Gift tax assessment on an insurance indemnity
If you receive an indemnity payment from an insurance company because you are a beneficiary under the insurance contract, it is treated as a gift. However, payments due to policyholder's death in life insurance or individual retirement contracts are not subject to gift tax. Instead, the tax authorities take them into consideration when assessing inheritance tax.
Similarly, insurance indemnities are not subject to gift tax in situations where the beneficiary must pay income tax on them. There is no need to pay double tax on an item of income:
- This way, only the part consisting of deposited savings within an insurance indemnity may be subject to gift tax.
- Where a positive return on investment has made the indemnity payment higher, it is taxed as income tax. As a result, no gift tax is collected.
- Payment of insurance indemnity is taxable for purposes of income tax also in circumstances where the beneficiary is in the second bracket (in relation to the donor i.e. the person who signed the insurance contract). In this case, no gift tax is collected on a received indemnity payment. More information on the second tax bracket.
If the insurance contract expired or had an effective expiration date prior to 1 January 2013, any receipts of indemnity by virtue of a beneficiary clause are not assessed for gift-tax purposes unless the total amount received within a three-year period goes over a threshold of €8,500. The 8,500-euro threshold is inclusive of all donors whose insurance contracts have resulted in a payment of indemnity to the beneficiary. If the insurance contract expired or had an effective expiration date after 1 January 2013, gift tax is payable on it regardless of the date when the insurance contract was signed.
Gifts that resemble a loan
When you borrow money from a lender and it is evident under the circumstances that you didn't have an intention to pay it back, the loan may be treated as a gift.
Loans may be agreed as being without interest. It is required that there is a payment plan setting out the repayments of a loan, and you must be able to prove that you made the repayments. It is also required that the amount you borrow and the planned repayments are realistic – i.e. in a reasonable proportion to your financial standing. For example, if you agree with your lender to repay a loan in the form of getting tax-exempt gifts repeatedly from them with three-year intervals, the tax authorities may regard the scheme as a gift subject to gift tax.
In this context, children under 18 are normally considered as unable to pay back loans. If children have no income that would cover the repayments, the conclusion is that the tax authorities must regard the scheme as a gift subject to gift tax.
Receipts of gifts from abroad
Gift tax must be paid when assets or property are transferred to a new owner as a gift:
- if the donor or the recipient live in Finland on the date when the gift is given or
- if immoveable property located in Finland is given as a gift or if corporate stock or shares are given of a company in which more than 50% of corporate assets consist of Finnish-located immoveable property.
Similarly, property located in a foreign country including an apartment in Spain is subject to gift tax if the donor or recipient live in Finland on the date of the gift.
In addition, a gift received from a foreign country is subject to Finnish gift tax, including cash received from someone who lives abroad if the recipient lives in Finland on the date of the gift.
Some circumstances require that Finnish gift tax be paid although both the donor and the recipient live abroad. Tax must be paid if immoveable property located in Finland is being given or if corporate stock or shares is given of a company in which more than 50% of its corporate assets consist of Finnish-located immoveable property.
- More information on gift taxation in international situations (in Finnish and Swedish only).