How to avoid gift tax in Finland

Are you expecting a major financial gift in the near or far future? For instance, do your parents wish to support you financially as you buy a home in Finland? Or someone wants to start transferring assets to you, which you would inherit at a later stage anyhow?
If so you are most likely very frustrated with Finland’s harsh taxation on gifts. Tax can even be up to 30%! It just feels bad to pay that much tax on a gift from a relative. This is why this post reveals different (legal) ways to avoid or minimize gift tax in Finland. Read below and learn how to save taxes.

How is gift tax calculated in Finland?

A gift is a transfer of property to another person against no compensation or payment. If the total value of the gifts you receive from the same donor during 3 years is €5,000 or more, you must pay gift tax. For gifts other than money (f. ex. shares or real estate) the gift’s fair market value is relevant.

The gift tax amount depends on the gift value and the tax bracket of the recipient. The tax bracket on the other hand depends on the ties between donor and recipient. Tax bracket 1 combines closest relatives and family (spouse, children, grandchildren), whereas bracket 2 all others, including brothers and sisters. See the gift tax table for the two brackets below:

Example: A gift with taxable value of €100,000 triggers gift tax of €10,100 in bracket 1 and €24,450 in bracket 2.

What do I need to do regarding gift tax in Finland?

If you receive €5,000 or more, file a gift tax return within 3 months from the date of gift. The easiest way is to file your tax return in MyTax. Also file a return if you receive several gifts from the same donor within 3 years and their total value is €5,000 or more.

Once tax authorities have handled your return you will receive the gift tax decision with instructions for payment. Please note it can take 6 to 12 months to process a gift tax return. You must pay gift tax approximately 3 months after reception of the gift tax decision.

How can I avoid or minimize gift tax liability in Finland?

There are different ways to actively avoid or minimize gift tax. You just need to plan in advance on how to ideally receive the gift from the donor.

Spread the gift value over a longer period

Receive €4,999 on December 31st 2021 and again on December 31st 2024 from the same donor without tax implication. This method obviously requires enough time and thus works for example for inheritance planning. You can also accelerate this recipe in connection with the next method.

Spread gifts over different donors and recipients

If possible, it can be wise to involve and combine different donors and recipients. This way you can use the tax-free amount of €4,999 more than once at the same time. See the example below, where A and B are married:

Gifts covering daily expenses

There is no gift tax liability if someone pays your daily expenses on your behalf. In other words, your parents can for example pay your rent or electricity bill for you. Such gifts are not subject to gift tax, unless the recipient can use the gift for some other purpose. In practice, the donor must always pay the bill directly to the landlord’s or electricity provider’s bank account. Or to the weekly supermarket delivery service. If the donor transfers money for your rent, etc. to you, it is not treated as a tax-free gift because an opportunity exists to spend the money on other things.

Interest-free loan

Finnish tax authorities do not consider interest-free loans a gift as such. You only have to make sure lender and borrower sign a loan agreement with a monthly repayment schedule and the loan is paid off accordingly. Bullet loans, i.e. the borrower pays off all the loan at once, on the other hand will unfortunately trigger gift tax. If the borrower gets unemployed, etc. both parties can in principle agree on an amortization-free period to an extent which banks would grant as well. Loan terms have at all time to be in line with what ordinary banks would offer as well. 
OBS: if you take an interest-free loan you should not accept other gifts from the lender to repay the loan. 

Purchase under fair market value (but above 75% of it)

If buying property for a price above 75% of its fair market value, Finnish tax authorities will not consider it a gift. If buying property for 75% or less of its fair market value the transaction is a gift-like sale and thus triggers gift tax. In gift-like sales the gift value is the difference between the fair market value and the selling price.

Gift with right of possession

It is possible to donate a summer house or other property as a gift, but to retain the right of its possession. Because the gift recipient receives only restricted power this way, the tax for gift recipient is smaller. The recipient must then fill out a gift tax return stating that the donor retains the right of possession. Tax authorities afterwards calculate a formal value for the possession right and deducts it from the gift’s value. This deduction reduces the amount of gift tax.

When agreeing on gifts with someone, do check above methods for the reason of tax planning. This way you save remarkable amounts on taxes and truly enjoy more of your gift.