Chain Gifts and German Gift Tax: When the Tax Office Recognises Them

Published on 13.10.2026

Chain Gifts and German Gift Tax

Whether parents want to transfer a house to a child or grandparents want to provide for their grandchildren: families quickly reach the limits of the personal allowances under German gift tax law. The chain gift (Kettenschenkung) makes use of the fact that, for gift tax purposes, allowances and tax rates depend on the family relationship. The assets do not pass directly to the final recipient but via an intermediary. Whether this works for tax purposes turns on a single question: was the intermediary free to decide what to do with the gift? This article explains the rules of the Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG) as at October 2026, the criteria applied by the Federal Fiscal Court (Bundesfinanzhof, BFH) and the particular issues that arise in cross-border situations. An overview of lifetime transfers in general is given in the article Lifetime asset transfer instead of a will.

What Is a Chain Gift?

In a chain gift (also referred to as a staggered gift or onward gift, gestufte Schenkung or Weiterschenkung), the first donor gives an asset to an intermediary. The intermediary then, by their own decision, passes the asset or part of it on to the final recipient. For tax purposes, there are then two separate acquisitions, each subject to the tax class and the allowance of the specific pair of persons involved.

The law does not prohibit using the allowances of other family members in this way. However, the second gift must genuinely be a decision of the intermediary and not the disguised fulfilment of an instruction given by the first donor.

Distinction from a Gift Subject to an Obligation to Pass It On

The counterpart of the chain gift is the gift subject to an obligation to pass it on (Schenkung unter Weitergabeverpflichtung). The first donor gives something to the intermediary and obliges them to pass it on to a third party, for example by way of a condition or a stipulation (Auflage). Under Section 7 (1) no. 2 ErbStG, anything acquired as a result of the performance of a stipulation imposed by the donor is deemed a gift. The intermediary is then merely a transit point. According to BFH case law, in this case there is, for gift tax purposes, only one transfer from the assets of the first donor to the third party. Only the allowance applicable between the first donor and the final recipient is then available.

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Why the Arrangement Works: Tax Classes, Allowances, Tax Rates

The personal allowances are governed by Section 16 (1) ErbStG, the tax classes by Section 15 (1) ErbStG. For gifts between living persons with unlimited tax liability, the following values apply:

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One detail is important and frequently overlooked in practice: parents and grandparents belong to tax class I only for acquisitions on death. If a child makes a lifetime gift to their parents, tax class II applies, with an allowance of only EUR 20,000.

In addition, there is the progression effect. The tax rate under Section 19 (1) ErbStG rises with the value of the taxable acquisition:

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If a large acquisition is spread over two donors, the tax rate often falls as well. Just above a value band, the hardship relief (Härteausgleich) under Section 19 (3) ErbStG cushions the jump.

Ten-Year Aggregation under Section 14 ErbStG

Under Section 14 (1) ErbStG, several acquisitions from the same person within ten years are aggregated. The allowance is therefore available only once in ten years per donor and per recipient. For the chain gift, this has two consequences:

• Each step is considered separately. The transfer from the first donor to the intermediary is aggregated with earlier transfers from the same donor to the same intermediary, and the onward gift with earlier transfers from the intermediary to the final recipient.
• Anyone who has already used the allowance vis-à-vis a spouse or child in the last ten years has less room for the chain.

How allowances can be staggered over several ten-year periods is also covered in the older article Anticipated succession: gift allowances can be used more than once.

Typical Constellations with Worked Examples

The examples are simplified and fictitious (unlimited tax liability, no prior gifts, value for tax purposes already determined).

Spouse as Intermediary

Example: Bernd wants to transfer a flat with a value for tax purposes of EUR 800,000 to his daughter Lena. If given directly, EUR 400,000 remains taxable after the allowance of EUR 400,000. At 15 per cent, this results in gift tax of EUR 60,000.

If Bernd instead transfers one half to Lena and the other half to his wife Clara, Clara’s acquisition of EUR 400,000 remains within the spousal allowance of EUR 500,000. If Clara later decides to give her co-ownership share on to Lena, Lena uses a separate allowance of EUR 400,000 vis-à-vis each parent. Both steps remain tax-free. The prerequisite is that Clara was actually free to dispose of her half.

Child as Intermediary in Favour of the Child-in-Law

Example: Hans wants to give a plot of land worth EUR 300,000 jointly to his son Tim and Tim’s wife Ana. If he gives Ana one half of EUR 150,000 directly, tax class II applies with an allowance of EUR 20,000. On EUR 130,000, 20 per cent is due, i.e. EUR 26,000. If Hans gives the entire plot to Tim and Tim, by his own decision, transfers half to Ana, both steps use the allowances for children and spouses. This constellation underlay the leading BFH decisions of 2013.

Grandparents, Parents and Grandchildren

Example: Erna wants to give EUR 600,000 to her grandson Max; Max’s mother Sabine is alive. If given directly, EUR 400,000 remains taxable after the grandchild allowance of EUR 200,000, i.e. EUR 60,000 in tax at 15 per cent.

A pure chain via Sabine helps only to a limited extent here: Sabine receives EUR 600,000 (EUR 200,000 taxable, 11 per cent, i.e. EUR 22,000) and gives it on to Max (again EUR 22,000). In total, EUR 44,000 is due. If, by contrast, Erna combines a direct gift of EUR 200,000 to Max with EUR 400,000 to Sabine, and Sabine, by her own decision, gives EUR 400,000 to Max, all three acquisitions remain within the allowances. The example shows that a chain is not an end in itself. The advantage often lies in combining direct and staggered transfers.

Siblings: The Detour via the Parents Does Not Usually Work

It is sometimes recommended to route money between siblings via the parents. This overlooks the fact that a child who makes a gift to their parents falls into tax class II and has an allowance of only EUR 20,000. The first step is therefore just as unfavourable as a direct gift to the sibling. A chain via the parents can only make sense if the parents pass on their own assets that they did not previously receive from the child.

When Does the Tax Office Assume a Direct Gift?

The Two-Stage Test

The BFH summarised its principles in its order of 28 July 2022 (II B 37/21). According to this, a two-stage test applies:

1. Interpretation under civil law: First, it must be clarified in the relationship between the first donor and the intermediary whether, under civil law, there is already a gift directly to the third party. If the first donor actually intended to benefit the final recipient and the intermediary was only interposed formally, the chain already fails at this stage.
2. Power of disposal of the intermediary: If there are two gifts under civil law, it must further be examined whether the intermediary retains their own power of disposal (Dispositionsbefugnis) over the asset. If this is lacking, there is, for tax purposes, a gift directly to the third party.

Own Freedom of Decision and Obligation to Pass On

According to settled case law, the decisive factor is whether the person passing on the asset has their own power to decide how the gifted asset is used. An obligation to pass it on may arise from an express clause, for example a stipulation in the gift agreement. According to the case law, however, it may also arise from the circumstances, i.e. from the interplay of the contracts, the coordination of their content and the recognisable aims of the parties.

At the same time, the BFH has made clear that the parents’ consent to the onward gift, or coordinated conduct that is natural within families, is not in itself sufficient to assume a direct gift to the child-in-law. The fact that all parties know where the assets are ultimately meant to end up is therefore not harmful in itself. What is harmful is a legal or factual commitment that leaves the intermediary no real choice.

Timing and a Single Notarial Deed

There is no statutory minimum period between the gifts. In its judgments of 18 July 2013 (II R 37/11 and II R 45/11), the BFH recognised onward gifts that were notarised immediately afterwards, in each case on the same day. Accordingly, a short period during which the asset remains with the intermediary does not in itself indicate an obligation to pass it on.

The BFH is stricter where both contracts are concluded in one deed or in two deeds executed immediately one after the other. In that case, the first recipient regularly does not obtain freedom of decision, unless the contract or the circumstances clearly indicate otherwise. In case II B 37/21, a father had transferred a plot of land to his daughter, who in the same contract gave half of it on to her husband. The Rhineland-Palatinate Fiscal Court (Finanzgericht Rheinland-Pfalz, judgment of 17 December 2020, 4 K 1417/19) recognised the chain, and the BFH dismissed the tax office’s complaint against the refusal to grant leave to appeal. This is an individual case with special circumstances, not a green light for single-deed models.

For practice, this means: the law does not prescribe a specific waiting period, for example one or two years; however, a gap in time improves the evidential position. Separate deeds, an express clause on the intermediary’s free disposal and a gap between the steps, in the case of real estate preferably until after the first transfer has been entered in the land register (Grundbuch), reduce the risk of a dispute.

Relationship to Section 42 AO

In addition, the general anti-abuse provision of Section 42 of the Fiscal Code (Abgabenordnung, AO) may come into consideration. Under Section 42 (2) AO, an abuse exists where an inappropriate legal arrangement leads to a tax advantage not provided for by law and no significant non-tax reasons are demonstrated. Using statutory allowances between relatives is not in itself an abuse; in the decisions on chain gifts, the focus was on freedom of decision. In the case of purely artificial intermediate steps without substance of their own, the tax office may nevertheless examine both routes.

Overview of the Case Law

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Implementation and Documentation

Whether a chain is recognised is often decided years later in an audit. The documents should therefore show from the outset that the intermediary was free.

1. Separate contracts for the first gift and the onward gift, each with its own date.
2. Clause on free disposal in the first contract, without an obligation to pass it on; align any rights of revocation or consent reserved by the first donor with this.
3. Wait for completion: in the case of real estate, the registration of the intermediary in the land register; in the case of money, receipt in the intermediary’s own account.
4. No side agreements: documents describing the passing on as binding may be read as evidence of an obligation.
5. Record the intermediary’s own motives for the onward gift.
6. Ten-year overview of all prior gifts between the parties.

Duty to Notify and Tax Debtor

Each step is a separate acquisition. Under Section 30 (1) and (2) ErbStG, a taxable acquisition must be notified to the tax office within three months, and in the case of gifts also by the donor. If the gift has been recorded by a court or a notary, the notification is in principle not required under Section 30 (3) ErbStG; the notary then reports it themselves. This exemption applies only where the deed is recorded by a German notary, a German court or a German consul, because only these are obliged to report to the tax office under Section 34 ErbStG. If one step of the chain is notarised before a foreign notary, Section 30 (3) ErbStG does not apply; the duty of the donor and the acquirer to notify under Section 30 (1) and (2) ErbStG then remains. The tax debtor is the acquirer and, in the case of a gift, also the donor (Section 20 (1) ErbStG).

Costs and Side Effects

In the case of real estate, each step incurs its own notary and land registry costs. Gifts of real estate are in principle exempt from real estate transfer tax under Section 3 no. 2 of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG); where liabilities are assumed, this must be examined separately. Every gift can be reclaimed if the donor becomes impoverished under Section 528 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) (excluded after ten years, Section 529 (1) BGB) and can trigger claims to supplement the compulsory portion (Pflichtteilsergänzungsansprüche) under Section 2325 BGB. In cross-border cases, this depends on the law applicable to the succession; see Compulsory portion law and foreign assets.

Cross-Border Situations: When One Party Does Not Live in Germany

In families with residences in several states, it must be examined separately for each step of the chain to what extent Germany has the right to tax. Section 2 ErbStG is decisive.

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A resident (Inländer) is anyone who has a residence or their habitual abode in Germany. Under Section 2 (1) no. 1 sentence 2 (b) ErbStG, German nationals remain residents even without a residence in Germany, as long as they have not been permanently abroad for more than five years. On the concept of abode, see Habitual abode in German tax law.

This results in some particular features for the chain:

• Intermediary abroad, final recipient in Germany: The onward gift remains subject to unlimited tax liability because the acquirer is a resident.
• First donor in Germany, intermediary and final recipient abroad: The first step is subject to unlimited tax liability. For the second, it depends on whether the intermediary is still a resident (five-year period) and whether the asset constitutes domestic assets. If the tax office does not recognise the chain, the first donor resident in Germany is deemed the donor, with full tax liability and the allowance of the direct relationship.
• Limited tax liability: Under Section 16 (2) ErbStG, the allowance under Section 16 (1) ErbStG is reduced proportionately to the extent that assets not subject to German tax were also acquired from the same person within ten years.
• Extended limited tax liability: If a donor has moved to a low-tax country and meets the requirements of Section 2 (1) sentence 1 of the Foreign Tax Act (Außensteuergesetz, AStG), Section 4 AStG may extend German tax liability beyond domestic assets.
• Shares in corporations: Anyone who transfers shares within the meaning of Section 17 of the Income Tax Act (Einkommensteuergesetz, EStG) free of charge to a person who is not subject to unlimited tax liability may, under Section 6 (1) sentence 1 no. 2 AStG, trigger taxation as in the case of a sale. An intermediary abroad is therefore particularly critical with such shares; see Exit tax on GmbH shareholdings.
• Foreign gift tax: The state of residence of the intermediary or of the final recipient may levy its own gift tax. Double taxation agreements covering gifts exist with only a few states; otherwise, at most a credit under Section 21 ErbStG comes into consideration. The details are explained in the article German inheritance tax and double taxation treaties. On foreign law, a local adviser should be consulted.

Moving abroad while a chain is in progress can change the tax liability of the second step. The order of the move and the gifts should therefore be planned in advance.

Binding Ruling before Implementation

Because recognition depends on the circumstances of the individual case and the tax authorities have repeatedly refused to recognise chain gifts in the past, a binding ruling (verbindliche Auskunft) from the tax office under Section 89 (2) AO should be applied for before implementation, at least before larger transfers. It binds the tax office to its assessment of the fully described facts that have not yet been realised. The fee under Section 89 (3) to (5) AO depends on the value in dispute, i.e. the value of the ruling to the applicant. In the case of larger asset transfers, it can quickly be in the four-figure to low five-figure euro range. It must be weighed against the tax that would be due if the arrangement were reclassified as a direct gift. In cross-border cases, a ruling in the other state may also come into consideration.

The legal development is also open: in October 2026, the Federal Constitutional Court (Bundesverfassungsgericht) is hearing abstract judicial review proceedings (abstraktes Normenkontrollverfahren) brought on application of the Bavarian State Government concerning, among other things, allowances and tax rates (1 BvF 1/23). Until a decision is handed down, the rules described remain unchanged. Further legal approaches to planning are presented in the article Erbschaftsteuer legal vermeiden (in German).

Conclusion

The chain gift is a recognised arrangement for using the allowances and tax classes of different family members. It only works if the intermediary would be allowed to keep the gift and the onward gift is their own decision; an obligation to pass it on leads to a direct gift. Separate deeds, a clause on free disposal, a gap in time and a ten-year overview reduce the risk. In cross-border cases, each step must be examined separately under Section 2 ErbStG.

Frequently Asked Questions

Is a chain gift legal?

Yes. However, it is only recognised for tax purposes if the intermediary was able to dispose of the asset freely and was not obliged to pass it on.

How much time must pass between the two gifts?

There is no statutory period; the BFH has recognised onward gifts made on the same day. However, a gap in time and separate deeds improve the evidential position.

Does a chain gift between siblings via the parents work?

As a rule, not as hoped. A child who makes a gift to their parents falls into tax class II with an allowance of EUR 20,000. The first step is therefore no more favourable than a direct gift to the sister or brother.

What happens if the tax office does not recognise the chain?

It treats the transaction as a gift from the first donor to the final recipient. Only the allowance of that relationship then applies, for children-in-law, for example, EUR 20,000, together with the tax class of that relationship.

Does a chain gift also work if one party lives abroad?

In principle, yes, but each step is examined separately under Section 2 ErbStG. In the case of shares in corporations, Section 6 AStG may also apply, and the foreign state may levy its own tax.

Attorney Dr. Johannes Fiala and the Munich-based firm, which focuses on international succession law, tax law and asset protection, advise families and asset holders on planning gifts within the family, from reviewing the allowances and drafting separate gift agreements to transfers involving parties abroad. Dr. Fiala has published extensively on questions of emigration and asset protection. Please get in touch with the firm without obligation to discuss your individual situation in an initial consultation.