date | theme

10. February 2021 | Property swing – transferring assets to spouses without gift tax

17. March 2021 | Gift of assets to nieces or nephews – Optimize gift tax

19. April 2021 | The property regime in family and inheritance law: community of gain – community of goods – separation of goods

07. June 2022 | Güterstandsschukel: You should pay attention to this so as not to fall into a “tax trap” (this contribution)

In the case of a property swing, spouses equal the gain among living. This can generate tax advantages. However, certain arrangements should not be chosen, as they can nullify the tax advantage again. This will be discussed below.

Due to the property regime, half of the additional profit in the context of a marriage can be collected tax-free. In doing so, the property status of the community of gains is terminated by notarizing and at the same time the property status of the separation of property is agreed. The one who has achieved less gain in the course of marriage will then receive a gain compensation demand against the one who has earned more. Thus, the gain during the marriage can be compensated. Then § 5 II ErbStG applies. Consequently, the profit compensation, which was justified by other means than the death of the other spouse, does not belong to the acquisition within the meaning of § 7 ErbStG and can therefore be collected tax-free.

After the property regime of the separation of goods has been agreed, the property regime of the community of profits is usually resumed. Consequently, one “swings” once away from the property status of the community of gain and then back again. Therefore, this construct is called a property swing. If one then lives again in the property regime of the community of gains, one can end it again, as described above and collect half of the gain tax-free. This design is recognized by the BFH as permissible.

Nevertheless, this tax advantage can be nullified by clumsy agreements. An example of such an arrangement is the deferral of the claim for compensation for the lifetime of the obliged entity. It is even more disadvantageous if this compensation claim is deferred without interest. We explain why and how they can prevent the resulting tax disadvantages.

The mentioned agreement is problematic if the beneficiary dies before the beneficiary. In this case, the person liable for compensation becomes the heir. The estate also includes the claim for compensation against the person liable for compensation, i.e. against the heir himself. This inherits the person liable for compensation. So he has a claim against himself.

From a civil point of view, then demand and duty coincide in the person of the heir, so that confusion occurs. Therefore, the claim and the obligation expire.

However, something else applies in tax law. There, this case is problematic. The beneficiary was entitled to the compensation during his lifetime. Therefore, the gain is also part of his assets. This property, of course, falls into the estate. In this case, § 10 III ErbStG applies. From a tax point of view, the legal relationships are therefore not extinguished by combining law and duty. They therefore continue to exist. Consequently, the person liable for compensation must pay tax on the acquisition of the claim for compensation against himself, even though he has never compensated for the gain.

In addition to the acquisition of property due to death, there is still a gift in this situation. The beneficiary has still granted the obliged entity the benefit of the interest-free deferral of the claim. Thus, the interest-free transfer of the capital was given. One could argue that there are hardly any more interest rates nowadays, so that this regulation even corresponds to the normal case. Nevertheless, if nothing has been agreed of the Valuation Act. It provides for an interest rate. This is significantly higher than current market interest rates. Therefore, as a result of the agreement in the context of the property regime swing, a large amount of advances is made. This must therefore also be taxed.

No acquisition of death ways, however, lies in the now established actual interest rate. The compensation obligation therefore does not acquire the interest receivable against itself through § 10 III ErbStG. The reason for this is that the interest demand did not exist at all and the interest-free deferral already follows a prior gift. If the acquisition of the fictitious interest claim were to be regarded as the acquisition of means of death, double taxation would therefore occur. The tax office cannot, on the one hand, rely on the fact that there was no interest-bearing deferral and, on the other hand, assume that the deferral is to be interest-bearing.

If you still wish to conclude such an agreement, you can prevent negative consequences by further agreements in the design of the property regime swing. For example, you could specify that the claim for compensation only exists until the death of the beneficiary and expires upon his death.

The property swing is a design tool with which you can transfer a lot of assets tax-free. However, this case shows that the property regime swing can nullify its tax advantages if it is clumsily agreed. We help you to use the property swing as a design model and thus transfer your assets tax-free.