Gifts for particular reasons - Tax-exempt occasional gift or one that is subject to gift tax?
Besides legacies, gifts constitute significant transactions that are included for inheritance and gift tax assessment purposes. Any generous gift made during one's lifetime is considered a gift inter vivos insofar as the beneficiary is enriched by it at the expense of the donor. Provided that the individual is liable for tax, such a transaction would be subject to inheritance and gift taxes. A so-called taxable acquisition is calculated as the value of the acquirer’s gain, unless there is a tax exemption. Besides the personal tax-free allowances that are deducted here, there is a tax exemption for customary occasional gifts that is frequently applicable in practice.
1. Use of tax-free allowances
The personal tax-free allowances are €500,000 for gifts to spouses, €400,000 for gifts to children, generally €200,000 for gifts to grandchildren and €20,000 for gifts to distant relatives and other persons. If the taxable acquisition does not exceed these exemptions then it would remain tax-free. The basis for calculating the taxable acquisition, from which the personal tax-free allowance is then deducted, are the financial benefits that accrue from the same individual over a period of ten years. First of all, this means that all gifts or legacies from the individual during a ten-year period preceding the acquisition in question must be taken into account and will be relevant for determining the applicable tax rate. Then again, taxpayers can however use their personal tax-free allowances (only) every ten years and thus, potentially, use them several times for acquisitions from the same individual.
2. Tax exemption for occasional gifts
Defining what is customary on the basis of three criteria
According to Section 13(1) no. 14 of the Inheritance and Gift Tax Act (Erbschaft- und Schenkungsteuergesetz, ErbStG), so-called customary occasional gifts remain fully tax-exempt. There are no legal norms that define what is considered customary with respect to occasional gifts. Moreover, to-date, there has been little case law or few published administrative opinions in this regard. However, the prevailing opinion has emerged that the customary nature of occasional gifts must be assessed on the basis of three criteria, namely, the occasion, the type and the value of the gift within an overall view of the circumstances of each individual case.
Occasions
Possible occasions could include
- not just regularly recurring events, such as, the beneficiary's birthday, Christmas and wedding anniversaries,
- but also singular occasions such as christenings, First Communion or Confirmation celebrations, high school graduation, coming of age, passing a driving test, completing vocational training or a course of study, and a wedding.
However, the occasion must not be based solely on the person of the donor.
Type of gift
Occasional gifts are primarily in-kind gifts of moveable property, such as, jewellery, watches, technological devices and, in some cases, a motor vehicle. Whether or not monetary gifts can be classified as occasional gifts will depend primarily on the amount involved. According to the predominant opinion and experience, larger sums of money do not qualify as tax-free occasional gifts. The transfer of real estate and/or business assets would likewise be ruled out as being an occasional gift.
Relative consideration of value
According to the prevailing opinion in the specialist literature, up to now, a relative approach needed to be adopted when assessing the customary nature of a gift. When considering the individual case as a whole, particular attention must be paid to the relationship between the value of the gift and the donor’s financial capability. On this basis, it must be assessed whether, given the donor’s financial circumstances and their associated self-image, as well as within their social circles, it is customary to give the beneficiary a present of this value for a specific occasion, or whether there are other reasons for the gift. Other factors that are relevant here include the personal relationship between the donor and the beneficiary and the significance of the occasion, which can be gauged, among other things, by its repeatability.
Accordingly, a gift that goes beyond what is customary would therefore be deemed to exist if, amongst other things, it results in a not insignificant reduction in the donor’s assets and a substantial reallocation of assets takes place that comes close to being a measure in the context of accelerated succession. However, when applying the benchmark of what is generally accepted practice, even in the case of very wealthy donors there is an upper limit to what is considered customary for gifts, which is assessed by the courts only in individual cases.
3. The limit set by a tax court
Already 100 years ago, the Fiscal Court of the German Reich refused to define a percentage limit based on assets in order to determine whether or not a gift was customary; now, however, the Rhineland-Palatinate tax court, in its ruling of 4.12.2025 (case reference: 4 K 1564/22) has set a strict limit for occasional gifts (see also PKF Magazine 4/2026, “€20,000 for Easter does not constitute an occasional gift”). According to this ruling, a gift of €20,000 on the occasion of Easter does not constitute a customary occasional gift even in the case of a wealthy donor. What is customary cannot be determined by the practices of certain sections of the population or by financial circumstances. Instead, determining what is customary has to be based on the benchmark of what is generally accepted practice, i.e., the view held by broad sections of the population. According to this ruling, if the statutory small amount limits are used as an indication in terms of value, then gifts, for example, to spouses, children or grandchildren with a value of less than €800, and to other persons, depending on their tax class, of less than €200 or €400 could thus be considered to be occasional gifts.
The ruling by the Rhineland-Palatinate tax court has not reduced the uncertainty surrounding the issue of occasional gifts, but it has rather amplified it. For a start, it is unclear whether this interpretation of what is customary will be confirmed or rejected in future court cases. The appropriateness of relative or absolute benchmarks could also be discussed in terms of the uniformity and, thus, the fairness of taxation. Moreover, it is currently not known how the ruling will be dealt with by the fiscal administration or whether it will change its previous approach in this regard.
4. Distinction from tax exemption for items of moveable property, etc.
A distinction needs to be made between occasional gifts and the application of the tax exemption - that is limited in amount and may in some cases be identical - for moveable items of property under Section 13b(1) no. 1(a) and (b) ErbStG and between non-taxable maintenance payments. According to a ruling by the Hamburg tax court, even in the case of joint consumption in the form of a luxury trip taken together, which the beneficiary would not have taken on their own, in principle, does not constitute a gift because of the lack of enrichment.
5. Notification requirement
According to Section 30 ErbStG, the local tax office that is responsible for gift tax generally has to be notified about each gift within three months - even if the gift is tax-exempt. It is then up to that tax office to evaluate whether or not a tax assessment process should be initiated to clarify the tax liability. To avoid discussions about notification requirements or further-reaching allegations of tax evasion in the case of significant gifts, we would recommend that you provide information to the tax office about the circumstances and your own assessment of why the gift is a tax-exempt occasional gift. This can be done in a letter accompanying a gift tax return if such a return has to be filed because of another gift, and the prior gifts have to be fully declared. Otherwise, the notification to the fiscal administration can be made via a separate letter or a precautionary gift notification together with a request for confirmation of tax exemption as an occasional gift. The local competent tax office would then normally comment on the assessment.
The notification requirement would not apply only if it can be clearly and unambiguously established that the gift has to be classified as being tax-exempt. Nevertheless, it may still be a sensible course of action here to document the circumstances surrounding the occasional gift so that, in cases of doubt, you would have an overview and a basis for justification. This would be particularly important if the occasion for the gift does not match the date when the gift is handed over, for example, because of delivery times or having to jointly select a piece of jewellery.
