Taxes in Germany

Inheritance tax in Germany

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A brief guide to what you may be liable to pay in German inheritance taxes.

Who is liable for inheritance tax?

In the case of an inheritance, it will be the heir; in the case of a donation, both the donor and the recipient are jointly liable. Where a donation or bequest is made to a special cause (zweckzuwendung), the person who makes the donation or bequest is liable.

The entire inheritance or gift in excess of exemptions is taxable if the deceased, heir, donor or recipient lives in Germany. If none of the parties is domiciled, only ‘German-situ' properties transferred are subject to tax.

Examples of German-situ property include German real estate (including mortgages), German business property, and more than a 10 percent stake in a German company.

Taxable base

The taxable base is the value of the inheritance minus the debts of the deceased, as well as the funeral and administrative expenses, and any personal and other exemptions (e.g. for business property).

The amount is rounded down to the nearest EUR 100. The inherited assets are generally valued at fair market value. If the funeral and certain administrative costs are not duly substantiated, a lump sum of EUR 10,300 per inheritance may be deducted instead.

Personal reliefs or exemptions

Various exemptions apply equally to gifts and transfers upon death. A spouse or civil partner of the deceased or a donor has a basic exemption of EUR 500,000. Every child has a basic exemption of EUR 400,000 and every grandchild is entitled to an exemption of EUR 200,000.

Recipients are classed in three different categories:

  • Category I: spouses and civil partners, children and stepchildren, grandchildren, great grandchildren and, in the case of inheritance, parents and grandparents.
  • Category II: brothers, sisters, nephews, nieces, stepparents, sons-in-law, daughters-in-law, parents-in-law, divorced spouses or former civil partners and, in the case of gifts, parents and grandparents.
  • Category III: other persons, including legal entities.


Every person from Category I is entitled to an exemption of EUR 100,000. Recipients in Category II are entitled to an allowance of EUR 20,000 (EUR 10,300 before 1 January 2009). The same applies to recipients of Category III.

There are also exemptions for certain items, such as household goods and works of art.


Other reliefs exist for business income (85 percent of the business assets may be inherited tax free under strict conditions) and for houses owned by the deceased that were used for themselves and their family as a residence before their death, which are inherited by the surviving spouse or civil partner.

Tax rates

The tax rates vary between 7 percent and 50 percent according to the relationship between the deceased and the heir, or between the donor and the recipient (see the three categories above). The inheritance and gift tax rates are as follows:

Value of the gift/inheritance up to and incl.

Rate

 

Category I

Category II

Category III

(EUR)

(%)

(%)

(%)

75,000

7

15

30

300,000

11

20

30

600,000

15

25

30

6,000,000

19

30

30

13,000,000

23

35

50

26,000,000

27

40

50

> 26,000,000

30

43

50

 

Double taxation relief

Foreign tax, if similar to the German inheritance and gift tax, may be credited proportionally against the German inheritance or gift tax due, but may not exceed the German tax. If the deceased or donor was a resident in Germany, a tax credit is available only with respect to foreign inheritance and gift tax imposed on foreign-situ assets that correspond to the assets on which non-residents are liable to German inheritance or gift tax.

If the deceased donor was a non-resident, a tax credit is available with respect to foreign inheritance and gift tax levied on all foreign-sourced assets. The tax credit may only be claimed where the German inheritance and gift tax liability did not arise later than five years after the inheritance tax and gift tax liability abroad. Treaties dealing with inheritance taxes may modify these foreign tax credit provisions.




Dorine Fraai / Expatica

Dorine Fraai specialises in international tax planning for both individuals and companies.
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