Inheritance Tax Law in Germany

In German inheritance cases, the obligation to pay German inheritance tax may arise under certain circumstances. Since a death within the family or among acquaintances causes emotions that can make it difficult to cope with inheritance and tax law problems, the experienced lawyers of Schlun und Elseven Rechtsanwälte are available to advise you, especially during this difficult time.

Our team will answer any questions you may have and support you in inheritance and tax law matters. We will be happy to advise you on preparing your inheritance tax return or concerning the business inherited through succession. Our practise groups, which specialise in all areas of German law, collaborate in such cases to provide you with the best possible support and advice.

Our inheritance law team answer all your questions regarding German inheritance tax

The full-service German law firm Schlun & Elseven Rechtsanwälte PartG mbB supports you in calculating the amount of German inheritance tax you have to pay as well as the corresponding tax return and examines all legal aspects.

Amount of Inheritance Tax in Germany

German inheritance taxes may be incurred during a succession. Heirs often wonder under what circumstances such a tax will actually be incurred and how high it will be. First of all, it can be stated that the amount of inheritance tax in Germany depends on two aspects. These are the degree of relationship of the testator to the heirs and the amount of the inheritance.

Inheritance Tax Allowances under German Law

However, it should be considered that there is an exemption amount below relating to the obligation to pay German inheritance tax. This allowance depends on the relationship between the heir and the deceased. Depending on the degree of relationship, the heirs are assigned to different tax classes. These are defined in § 15 of the Inheritance Tax and Gift Tax Act (ErbStG). According to the norm above, a distinction is to be made between three tax classes:

  • Tax class I: Spouses and civil partners, children and stepchildren as well as the descendants of these and, if applicable, parents and grandparents,
  • Tax class II: siblings as well as their descendants, step-parents, children-in-law, parents-in-law, divorced spouses as well as partners in a dissolved civil partnership and, if applicable, parents as well as grandparents,
  • Tax class III: other acquirers (friends rather than family members) and special-purpose donations.

Depending on the tax class and, in particular, on the degree of relationship between the heir and the deceased, the amount of the tax-free allowance is then determined. The following applies: the closer the relationship, the higher the tax-free amount. For example, the tax-free amount is €500,000 for spouses and registered civil partnerships, €400,000 for children – regardless of whether they are biological, adopted or stepchildren – and €200,000 for grandchildren (cf. § 16 ErbStG).

Pension Allowances under German Law

According to § 17 ErbStG, a particular group of persons is granted a pension allowance in addition to the tax allowance already mentioned. This serves to ensure the provision of the heirs belonging to this group of persons after the testator’s death. The surviving spouse or registered partner is granted a pension allowance of € 256,000. Also, according to § 17 (2) of the Inheritance Tax Act, children in the sense of tax class I No. 2 are granted a pension allowance for acquisitions because of death, which is staggered according to age classes. However, only children up to the age of 27 are entitled to such an allowance.

Tax Rates and Tax to be Paid

If the allowance is exceeded, inheritance tax is due. The tax rate to be paid depends in turn on the amount of the estate. The higher the value of the estate, the higher the tax to be paid. It should also be noted that the inheritance tax to be paid also increases as the tax bracket rises. For example, the tax rate for persons belonging to tax class I is the lowest, whereas the tax rate for persons belonging to tax class III is the highest.

The inheritance and tax lawyers at Schlun & Elseven Rechtsanwälte will be happy to inform you about which tax class you belong to and how high the tax rate will be for the amount of the estate bequeathed to you.

Difference between Inheritance Tax and Gift Tax

An inheritance is a gratuitous acquisition. A gift also constitutes such an acquisition, which can also trigger a tax liability. Despite the fact that inheritance and gift are two different transactions from a legal point of view, the above applies. The calculation of gift tax is therefore basically the same. Inheritance and gifts are regulated by the Inheritance Tax and Gift Tax Act (ErbStG).

Real Estate Inheritance

It is not uncommon for real estate to become part of an inheritance. In such cases, the market value of the property is determined by the competent tax office. This value then forms the basis for calculating the inheritance tax due, which in turn takes the following aspects into account:

  • The market value of the property,
  • the relationship between the deceased and the heirs,
  • Is it a rented property or the deceased’s own home?
  • Use after the inheritance.

Rented Property

According to § 13d ErbStG, real estate that is rented out for residential purposes is to be assessed at 90 % of its value. This means that 10 % of the market value is not taxed. This has the consequence that the inheritance tax to be paid is lower. If applicable, the deduction of the 10% reduces the value of the property to such an extent that taxation is not even considered, as the tax-free amount is not reached.

The Deceased’s Own Home & Primary Residence

In the case of the deceased’s own home, i.e. the residential property last used by the deceased, a tax exemption is provided (cf. § 13, para. 1, no. 4 ErbStG). However, exemption from tax is only possible for the following persons:

  • Spouse or registered civil partner,
  • children of the testator.

It is a prerequisite that the heirs concerned occupy the property themselves for a minimum of 10 years. What is meant here is the use of the inherited property as the primary residence. If the intention is to rent the property to others or sell it, ten years of owner-occupation must have passed to save inheritance tax. On the other hand, if the property is sold before this period expires, inheritance tax becomes due retroactively.

If the heirs are one’s children, they will only be granted tax exemption if the inherited property, which is also to be lived in for at least ten years, has a maximum living space of 200 square metres.

German Inheritance Tax for Companies

Inheritance tax exemption or lower tax payment is also possible for companies. The acquirer has the option to choose between the standard exemption and the option exemption. To achieve total exemption from inheritance tax (Optionverschonung), the heir is obliged to fulfil the following conditions:

  • Continuation of the business for at least seven years,
  • proof that the required minimum wage has not been undercut during this period;
  • The administrative assets do not exceed 10 %.

According to § 13a (1) ErbStG, it is possible for preferential assets within the meaning of § 13b (2) ErbStG to remain 85 % tax-exempt. Under the standard exemption model, only 15 % of the assets are subject to taxation. Here, too, the fulfilment of certain conditions is required:

  • Continuation of the business for at least five years,
  • proof that the required minimum wage has not been undercut during this period;
  • The administrative assets do not exceed 50%.

The minimum wage requirement depends on the number of employees in the business. Our lawyers will be happy to explain the relevant scale to you and advise you on any business issues. Contact us today via the online form below to benefit from our legal services.

Special Case of the “Berlin Will”

In the case of married couples, the “Berlin Will” often comes up in the course of planning the estate. In this form of will, the spouses appoint each other as sole heirs. The children of the couple therefore do not inherit at first. Only when both parents have died do they become heirs to their parents’ estate.

The “Berlin Will” has many advantages as well as disadvantages. With regard to the inheritance tax due, it is important to consider that the children, who are in principle each entitled to an allowance in the event of the death of each parent, only have or can use a tax allowance due to the Berlin will and the resulting one-off inheritance. This can have a negative effect on the inheritance of the children, as the estate value is thus more often above the applicable tax-free amount and the inheritance tax can be correspondingly high.

German Inheritance Tax Return

If a person accepts an inheritance, an inheritance tax return may be due. Furthermore, the following aspects must be considered in connection with the inheritance tax return.

Duty to Notify the German Tax Office

According to § 30, paragraph 1 of the Inheritance Tax Act (ErbStG), in the case of an inheritance, an heir is obliged to notify the competent tax office in writing of the acquisition within a period of three months after becoming aware of it. An exception applies if the acquisition is based on a testamentary disposition opened by a German court, a German notary or a German consul and the relationship of the acquirer to the testator is undoubtedly evident from this disposition (cf. § 30, paragraph 3 ErbStG). However, it should be noted here that the obligation to notify may nevertheless exist in such cases. If the acquisition includes real estate, business assets, shares in corporations and foreign assets, the obligation to notify the competent tax office remains.

Since banks, for example, may be obliged to report the inheritance, the tax office may be informed of the inheritance at an early stage. It is not uncommon for the responsible office to contact the heirs and send them the necessary forms. These must then be completed and returned to the tax office.

If the responsible office does not contact you, we advise you to take action yourself. Contact the tax office and ensure that you receive the necessary forms. We will be happy to assist you in these steps.

Required Information for the German Tax Office

According to § 30, paragraph 4 of the Inheritance Tax Act (ErbStG), the notification should be made to the competent tax office with the following information:

  • Name, identification number, profession, address of the deceased and the acquirer,
  • date and place of death of the deceased,
  • the object and value of the acquisition,
  • legal basis of the acquisition,
  • relationship to the deceased,
  • previous gifts (e.g. gifts made in the last 10 years before the inheritance, cf. § 14 ErbStG).

Proceedings for Tax Evasion in Germany

If there is an obligation to report the inheritance to the competent tax office and you do not comply with this obligation, you risk proceedings for tax evasion. The same applies if, for example, you provide incomplete or incorrect information in the tax declaration or the tax return or if you do not reasonably fulfil your obligation to pay the taxes by failing to pay them in full or in part.

Depending on the amount of inheritance tax, you may be liable to a fine or imprisonment if convicted of tax evasion. Our lawyers will be happy to advise you and represent you in your proceedings. Contact us today via our online form. The legal experts of Schlun & Elseven Rechtsanwälte will examine the facts of the case and develop a strategy to defend your rights.

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Practice Group: German Inheritance Law

Practice Group:
German Inheritance Law

Dr. Thomas Bichat

Lawyer | Salary Partner

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