Exemption (heir)

Exemption Amount (Heirs) - The inheritance tax exemption is the amount up to which an inheritance or gift remains tax-free. The amount depends on the degree of kinship between the decedent and the heir and is governed by the Inheritance and Gift Tax Act (ErbStG).

How much are the exemptions for inheritances and gifts?

German inheritance tax law structures the exemptions according to the tax class determined by the family relationship. Spouses and registered partners receive a personal exemption of 500,000 euros (Tax Class I). Children and stepchildren benefit from an exemption of 400,000 euros. Grandchildren whose parents have already passed away also receive 400,000 euros; otherwise, a 200,000-euro exemption applies to grandchildren. Parents and grandparents in the event of inheritance receive 100,000 euros. For all other heirs-such as siblings, nieces, nephews, or unrelated persons-the exemption amounts to only 20,000 euros.

In addition to the personal exemption, there is the so-called pension exemption, which is granted exclusively in the event of inheritance, not for gifts. Spouses receive a pension allowance of 256,000 euros, which is, however, reduced by the present value of any pension benefits (e.g., widow’s pension). For children, the pension allowance is graded according to age: It ranges from 52,000 euros for children over 20 years of age down to 10,300 euros for children between 5 and 10 years of age.

Only the amount exceeding the respective exemption is actually taxed. Tax rates start at 7 percent in tax bracket I and can reach up to 50 percent for distant relatives and high asset values. Careful estate planning that makes full use of all tax-free allowances is therefore particularly important when it comes to real estate assets.

The 10-Year Rule and the Family Home Exemption

A particularly effective tax planning tool is the so-called 10-year rule for gifts. Personal tax-free allowances can be claimed anew every ten years. Those who begin transferring real estate assets early can thus pass on substantial assets tax-free to the next generation over several decades. If a property valued at 800,000 euros is transferred to a child, a total of 800,000 euros can be transferred tax-free through two gifts made ten years apart.

In addition, inheritance tax law provides for a complete exemption for the so-called family home. If a spouse or a child inherits the decedent’s owner-occupied property and continues to live there for at least ten years, no inheritance tax is levied on this asset-regardless of its market value. For children, however, this exemption applies only to a living area of up to 200 square meters.

Property Valuation by the Tax Office

Inheritance tax is based on the property value determined by the tax office. This value is calculated in accordance with the Valuation Act (BewG)-typically using the comparative value method (for condominiums and single-family homes), the income value method (for multi-family homes), or the asset value method (for special building types).

The property value determined by the authorities sometimes differs from the actual market value-both upward and downward. Owners have the right to prove a lower market value through an expert appraisal. If this appraisal is available, the tax office must accept the lower value and reduce the tax burden accordingly.

Practical Tip for the Nuremberg and Franconia Region

In the Nuremberg metropolitan region, real estate prices have risen significantly in recent years. A single-family home in sought-after neighborhoods such as Erlenstegen, Mögeldorf, or Ziegelstein can easily reach market values exceeding the 500,000-euro mark. As a result, the property value in many cases already exceeds the tax-free allowance for children. We recommend that owners in Nuremberg and Franconia seek professional advice early on and explore the options for staggered gifting. A current property appraisal forms the basis for any tax planning. Especially if the parental property exceeds the tax-free allowance for children, it is worthwhile to combine a gift subject to a right of usufruct, the use of the 10-year period, and, if applicable, a life annuity to spread the tax burden over several years.

Frequently Asked Questions

Does the tax-free allowance apply equally to inheritance and gifts?

Yes, the personal allowances apply to both inheritances and inter vivos gifts in the same amount. The key difference lies in repeatability: For gifts, the allowance can be fully utilized again every ten years. The pension allowance, on the other hand, applies only in the event of inheritance, not for gifts.

How is the value of an inherited property determined?

The tax office determines the property value in accordance with the Valuation Act (BewG), typically using the comparative value, income value, or asset value method. This value may differ from a market value determined by a private appraiser. Owners have the right to prove a lower market value through an expert appraisal and thus reduce the tax base.

Can tax-exempt allowances be used multiple times?

Tax-exempt allowances are available per decedent or donor. A child can therefore inherit or receive a gift of 400,000 euros tax-free from each parent separately. For gifts, the tax-exempt allowance is fully renewed every ten years. Through forward-looking planning, even larger real estate assets can thus be transferred tax-free over the years.

What tax planning tools complement the real estate tax allowances?

In addition to directly utilizing the tax allowances, real estate owners have other instruments at their disposal. A gift subject to a right of usufruct allows the property to be transferred to the next generation during the owner’s lifetime, while the parents retain the right to use or reside in the property for life. Usufruct significantly reduces the property’s gift tax value because the capital value of the reserved right of use is deducted from the property’s value. This allows even properties with a market value significantly above the exemption amount to be transferred in a tax-efficient manner. Another tool is the transfer in exchange for a life annuity: The transferor receives monthly annuity payments, which, in return, reduce the gift tax value of the transfer. In the Nuremberg metropolitan area, where single-family homes in popular neighborhoods such as Ziegelstein, Mögeldorf, or Erlenstegen reach values ranging from 700,000 to over 1 million euros, these planning tools are not merely academic exercises but concrete tax planning strategies with five- to six-figure implications.

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