Inheritance tax

Inheritance Tax - Inheritance tax is a tax on the acquisition of assets through inheritance, levied in accordance with the Inheritance and Gift Tax Act (ErbStG). The amount of the tax depends on the degree of kinship to the decedent, the tax bracket, and the value of the inherited assets, minus personal exemptions.

What exactly does inheritance tax mean?

In Germany, inheritance tax is levied as a tax on the acquisition of an inheritance - meaning that it is not the estate as a whole that is taxed, but rather the individual acquisition of each heir. The tax offices are responsible for collecting the tax; in Bavaria, this is the respective inheritance tax office. The acquisition becomes taxable upon the death of the decedent, and the heirs are required to report the inheritance to the tax office within three months.

The law distinguishes three tax classes based on the degree of kinship. Tax Class I includes spouses, registered partners, children, stepchildren, and grandchildren-they benefit from the highest exemptions and the lowest tax rates (7 to 30 percent). Tax class II applies to siblings, nieces, nephews, stepparents, and children-in-law (15 to 43 percent). Tax class III applies to all other beneficiaries, including non-relatives (30 to 50 percent).

Personal allowances play a central role in calculating the tax burden. Spouses and registered domestic partners can inherit up to 500,000 euros tax-free, children up to 400,000 euros per parent, grandchildren up to 200,000 euros, and all other individuals in Tax Class I up to 100,000 euros. In Tax Classes II and III, the tax-free allowance is only 20,000 euros. These exemptions apply per inheritance and per beneficiary.

When it comes to real estate, valuation is a particularly complex issue. The tax office determines the value of the inherited property in accordance with the provisions of the Valuation Act (BewG) using three standardized methods: the comparative value method (for condominiums and townhouses), the income value method (for rented properties), and the cost value method (for single-family homes and special properties). Since the reform of valuation law effective January 1, 2023, these methods have been more closely aligned with actual market values, which has led to significantly higher assessed values, particularly in regions with high real estate prices.

Tax Exemption for the Family Home

One of the most important benefits under inheritance tax law is the complete tax exemption for the so-called family home under Section 13(1)(4b) and (4c) of the Inheritance Tax Act (ErbStG). If a spouse or registered domestic partner inherits the decedent’s owner-occupied property, it remains completely exempt from inheritance tax-regardless of its value. The prerequisite is that the heir immediately begins using the property for residential purposes and lives there for at least ten years. If the property is vacated before the end of this period, the tax exemption is retroactively revoked, unless there are compelling reasons, such as moving into a nursing home.

The tax exemption also applies to children, but only up to a living area of 200 square meters. If the area exceeds this limit, only the excess portion is taxed. Here, too, the property must be occupied by the heir for ten years.

Practical Tip for Property Owners in Nuremberg and Franconia

In the Nuremberg metropolitan region, property values have risen significantly in recent years, meaning that inherited properties are increasingly exceeding personal tax-exempt thresholds. A condominium in sought-after Nuremberg neighborhoods such as Erlenstegen, Mögeldorf, or Schmausenbuck can quickly reach a taxable value of 400,000 to 600,000 euros, while a single-family home in Knoblauchsland or Fürth-Dambach may exceed that amount.

Our network of experts recommends that property owners in Franconia consider a staggered lifetime gift early on. This is because the tax-free allowances are fully renewed every ten years-so those who start in time can transfer substantial assets tax-free. The so-called 10-year period under Section 14 of the Inheritance Tax Act (ErbStG) means that gifts and the subsequent inheritance are aggregated if less than ten years elapse between them. Strategic estate planning with tax and legal advice can significantly reduce the tax burden for the next generation.

Frequently Asked Questions

How is an inherited property valued for inheritance tax purposes?

The tax office determines the property value in accordance with the Valuation Act. Depending on the type of property, the comparable sales method, the income approach, or the cost approach is used. Heirs have the right to prove a lower market value through a qualified expert appraisal if the value determined by the tax office is too high. The cost of the appraisal ranges from 1,500 to 3,500 euros, depending on the property.

Can lifetime gifts reduce inheritance tax?

Yes, this is one of the most effective strategies for tax optimization. Since personal tax-free allowances are renewed every ten years, parents can, for example, gift assets worth up to 400,000 euros to each child every ten years tax-free. For a married couple, this amount doubles to 800,000 euros per child per decade. Timely planning is crucial here, as gifts made within the last ten years before the inheritance takes effect are added to the estate.

Is the decedent’s owner-occupied home always subject to tax?

No, under certain conditions, the inheritance of the family home is tax-free. Spouses and registered partners can inherit the owner-occupied property tax-free regardless of its value, and children can inherit it tax-free up to a living area of 200 square meters. In both cases, the condition is that the heir must move into the property immediately and live there for at least ten years. The use for personal residential purposes must be continuous.

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