Status: 10.11.2023, 20:05 PM
By: Markus Hofstetter
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Children don't just cost parents money. The offspring can also help to save taxes. A little-used option is the transfer of assets.
Berlin – Children are expensive. According to the Federal Statistical Office, parents spend an average of around 148,000 euros per child until they reach the age of 18. In order to alleviate the financial burden, the state supports the parents. These include child benefit, which currently amounts to 250 euros per month per child, and the child allowance, which currently stands at 8,952 euros. In addition, a family can deduct childcare costs of up to 4,000 euros per child from their taxes.
Tax-saving model for transferring assets to children: Maximum savings of around 57,000 euros
For parents who have capital saved, there is another option. A transfer of assets to the children can also save taxes. Since children usually have little or no income of their own, they pay little or no tax. However, like any adult, they are entitled to the basic tax-free allowance of 10,908 euros, up to which no taxes have to be paid. In addition, there is the saver's lump sum of 1,000 euros and the special expenditure lump sum of 36 euros. In total, a child can receive 11,944 euros per year in investment income tax-free. However, if they have higher income, they have to pay tax on them.
Parents can save © a lot of tax by transferring assets to their child Joseffson/Imago
What is the effect? In the best-case scenario, a family can save around 3,150 euros in taxes per child, which is 26.4 percent of 11,944 euros. The 26.4 percent is made up of 25 percent capital gains tax plus a 5.5 percent solidarity surcharge. There may also be the church tax. In 18 years, this would result in a saving of almost 57,000 euros.
Transfer of assets to children: There is no threat of disadvantage in the case of inheritances
The following example illustrates the savings: Parents transfer a stock portfolio worth a good 100,000 euros to their child at birth. Due to the tax-free allowance of 400,000 euros, there is usually no gift tax on this. Assuming a return of four percent, the child would receive 4,000 euros in interest tax-free – provided he or she has no other income. If the assets were still in the hands of the parents, they would have to pay around 740 euros in taxes.
The allowance can be used every ten years, so that there are no disadvantages in the event of subsequent inheritances. The entitlement to child benefit also remains unaffected. In addition, it is advisable to apply for a non-assessment certificate for the children at the tax office so that the capital gains can be paid out tax-free.
Tax-saving model of asset transfer: There are a few things to consider
However, there is one drawback: statutory health insurance. With a regular monthly income of 485 euros, a child would fall out of the non-contributory family insurance and would have to insure themselves. Therefore, it should first be calculated whether the possible health insurance contribution does not exceed the tax savings.
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In addition, the tax-effective transfer of assets to children is subject to strict formal requirements. Thus, the transfer must be final and cannot be reversed by revocation. This means that the gifted assets must actually become the child's property and the parents must no longer have access to them. For example, the account must also be in the child's name.
Overall, a transfer of assets to children can be quite attractive for a family from a tax point of view. However, given the complexity of the matter, it may be worthwhile to consult a consultant.