Inheritance tax on property in Germany

When German tax applies

Section 2 ErbStG distinguishes unlimited and limited liability. Tax applies to everything you inherit (unlimited liability) if the deceased or the heir was a “resident” at the relevant time. A resident includes a person with a home or habitual abode in Germany, and a German citizen who has not been abroad for more than five years without keeping a home in Germany.

In all other cases the tax covers only German-situated assets (limited liability), which includes German land and buildings through the reference to section 121 of the Valuation Act. So a British, American or Canadian heir of a German flat can owe German tax even though neither person lived here. Section 16(2) then reduces the allowance proportionally by the value of the non-German assets received from the same person in the same ten years. Whether a treaty or foreign tax credit reduces the overall burden depends on your country of residence; ask an adviser.

Tax classes and allowances

Section 15 sorts heirs into three classes, and section 16 sets the allowance for each (for unlimited liability):

An unmarried partner falls under class III under section 15.

The rates

Section 19 sets the rate according to the value of the taxable acquisition after deducting the allowance, and the class:

The rate applies to the whole taxable amount, with a relief in section 19(3) where a step into the next bracket would otherwise cost more than part of the excess. As a calculation, not advice: a child inheriting a share worth €700,000, with no other items, has €300,000 above the €400,000 allowance. At the 11% rate that is €33,000, before any exemption or deduction.

How the property is valued

Section 12(3) values German land and buildings at the value the tax office determines under the Valuation Act at the date of death, not at the price a buyer would pay. Section 13d lets let residential property be taken at 90% of its value if it is let for housing and meets the conditions of that section. A buyer’s offer or an independent valuation can differ from the tax value.

The family home exemption

Section 13 no. 4b exempts the acquisition of the family home by a surviving spouse or registered partner, and no. 4c exempts it for a child (or a child of a deceased child), in each case if:

• the deceased lived there until death, or was prevented by compelling reasons;
• the heir intends to move in without delay and live there;
• for a child, the living space is no more than 200 square metres; and
• the heir does not have to pass the home on to a third party under a will or division of the estate.

The exemption lapses retroactively if the heir stops using the home as their own residence within ten years, unless compelling reasons prevent it. The home must be in Germany, the EU or the EEA. Spouses can also give each other a family home tax-free in lifetime, under no. 4a.

Deadlines and who pays

The tax arises on the death (section 9). Each heir must notify the competent tax office in writing within three months of learning of the inheritance (section 30(1)); no notification is needed when a German court or notary has opened a will that clearly shows the relationship, unless the estate includes land, a business, certain shares or foreign assets (section 30(3)). The office may request a return with a deadline of at least one month (section 31).

The heir is the taxpayer (section 20). Until the estate is divided, the estate is liable for the tax of the participants.

Earlier gifts

Section 14 adds together all gifts and inheritances from the same person within ten years, so an allowance used by a gift is not available again for an inheritance in that period. See gift tax on property.

Which professional to consult

A notary handles the certificate of inheritance and land register changes. A tax adviser (Steuerberater) or a lawyer prepares the notification and applies the exemptions. A property valuer can help if you want to challenge a tax value.