Gift – or advancement of inheritance?
A gift means a transfer of property to another person without compensation or payment. 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 (i.e. a transfer of property in advance of the donor’s death). This way, advancements are gifts, which makes it necessary for the recipient to pay gift 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 (conversely, the donor may also have entered a clause in the last will that a certain gift is an advancement).
The gift recipient must pay gift tax on the received gift, regardless of whether it is treated as an ordinary gift or treated as an advancement. 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. An ordinary gift is accounted for in the assessment of inheritance taxes only if the gift was received maximally 3 years prior to the donor’s date of death.
To sell property below market value may be interpreted as advancement
If you sell your property to your child and charge a price below market value, it may also be a gift that must be treated as an advancement. A sale is not regarded as involving a price below market values if the price is more than 75% of the property’s fair market value. If the selling price is the same as the property’s fair market value, the transaction is not considered an advancement.