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The German income tax law is complicated with respect to transfers of property by individuals in return for recurring payments. Such transfers are in particular common within families seeking to redistribute their property among family members for income and, above all, estate planning reasons. Important in this connection are distinctions of the following sorts:
-- Type of recurring payments
Term annuity / instalments
Long-term burden (dauernde Last, a term of art designating adjustable recurring payments)
-- Type of property transferred
Business property (Betriebsvermoegen)
Non-business property (Privatvermoegen)
Income-producing asset such as business or real estate
-- Motive for making recurring payments
Purchase (value of recurring payments equal to fair market value of prop. rec'd.)
Support payments (value of recurring payments more than twice that of prop. rec'd.)
Future care payments (value of recurring payments well below that of prop. rec'd.)
-- Relationship of transferor to transferee
The deductibility of the recurring payments made by the recipient of the transferred property (all, part, or none) and the liability to tax of the transferor of the property for the recurring payments received (all, part, none) depends on the combination of the above factors. Transactions involving inter vivos transfer between close relatives of income-producing assets in return for lifetime future care payments are sometimes referred to as "anticipated inheritance" transfers (vorweggenommene Erbfolge). They trigger gift tax, but can offer particular income tax advantages when the recurring payments are structured as long-term burdens (dauernde Last). Such transactions are an option for structuring transfers of real property made by the end of 1995 in light of the expected future increase of gift/inheritance tax on real property.
Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.
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