Expats moving to Germany for the long term should consider what inheritance tax in Germany might mean for their assets and their heirs.
If you’re planning on living or retiring in Germany, it’s helpful to know how inheritance tax in Germany works, and how it might affect your assets.
Bear in mind that inheritance tax rules in Germany may differ from those in your home country. In fact, German inheritance tax for non-residents and foreigners can be subject to certain exemptions.
This guide covers the following topics:
- German inheritance law and succession rules
- German inheritance tax
- Paying inheritance tax in Germany
- Reducing your inheritance tax in Germany
German inheritance law and succession rules
The federal government in Germany is in charge of inheritance law and applies the rules across the country – without any regional variations.
Germany also follows ‘universal succession’, which means that heirs inherit the deceased’s assets – as well as debt obligations – without the need for an executor or a court ruling.
While forced heirship rules in Germany aren’t as strict as in some other European countries, a person can exclude close relatives who are natural heirs from their will.
Equally, statutory heirs who have been excluded can make a claim (Pflichtteil) on the estate, but they may need to provide a Certificate of Inheritance under German Probate Law.
If there is no will, EU rules will apply. These state that if a foreign resident dies without leaving a will, the law of the country in which they resided for the last five years will apply.
Inheritance law on pensions in Germany
In addition to money held in bank accounts, surviving relatives may also be able to inherit the deceased’s pension.
Inheritance law in Germany includes a survivor’s pension, child-raising pension and an orphan’s pension for widows, widowers and surviving children.
However, the deceased must have fulfilled a minimum insurance period of five years of contributions before passing away for the surviving relatives to be eligible. In a few cases, it can be sooner – for instance, if they died because of an accident at work, or shortly after completing training.
The couple must also have been married for at least a year for the spouse to be entitled to a widowers’ pension.
German inheritance tax law states that children can usually receive an orphan’s pension until they turn 18.
This can extend to 27 if they fulfill certain requirements, such as remaining in education or professional training, or if they’re carrying out voluntary social, ecological or military service.
These kinds of pension payments aren’t subject to inheritance tax.
German inheritance tax
Inheritance tax rates in Germany are consistent across the whole country. They apply to savings, property and other valuable assets, but there are a number of allowances and exemptions in place.
Charges depend on the heir’s relationship to the deceased; close relatives such as spouses and children will pay less tax than anyone else.
There are three relationship categories. The table below shows which category relatives and other individuals fit into, and the tax-free allowance they receive:
|1||Children, stepchildren, grandchildren/great-grandchildren||€400,000|
|1||Grandchildren/great-grandchildren of living children||€200,000|
|1||Parents and grandparents||€100,000|
|2||Siblings, nieces/nephews, step-parents, relatives by marriage, divorced spouse||€20,000|
|3||All other individuals, including legal entities||€20,000|
These categories are then used to determine the rate of inheritance tax charged, ranging from 7%-50%.
Inheritance tax rates
|Up to €75,000||7%||15%||30%|
|More than €26,000,000||30%||43%||50%|
German inheritance tax will apply to what’s known as the taxable base; the amount you’ve inherited after the debts of the deceased, funeral and administration expenses and any other personal exemptions have been taken away.
If the funeral and admin costs aren’t substantiated, a lump sum of €10,300 per inheritance may be deducted instead.
Heirs that inherit more than €26,000,000 can apply for a tax abatement if they can prove they are unable to pay the tax from their ‘available assets’.
Available assets are defined as being half the sum of the inheritance’s value and the heir’s previously-owned assets.
There are exemptions for certain items, such as:
- household goods and personal effects up to €41,000;
- works of art, cultural assets or items of scientific interest;
- German-based pension plans;
- some business assets;
- gifts to churches or charities
Estate tax in Germany
Estate tax rules in Germany may apply if property makes up part of the deceased’s estate.
The property’s value will be assessed on its fair market value (FMV) at the time of death.
For a property to be recognized as part of a German estate, it needs to be registered in the local land registry (Grundbuch). You can also find out more in our guide to buying German property.
Some properties are exempt from estate tax in Germany. If there’s a property that’s been used as the family residence before the deceased passed away, it will be exempt from German estate tax as long as:
- it’s inherited by the spouse;
- the property will be used as the family home for the next 10 years;
- it’s located in the EU or EEA
Real estate that has a public interest, and community or jointly owned property, is also exempt.
In cases where property is in another country, Germany has estate tax treaties in place to avoid issues of double taxation. This applies in countries such as Denmark, France, Sweden, Switzerland and the United States.
Full details of double tax treaties in Germany is maintained by Germany’s Bundesministerium der Finanzenhere (Federal Ministry of Finance, link in German).
If the amount of foreign tax owed is similar to German inheritance and gift tax, it may be credited proportionally against it.
Paying inheritance tax in Germany
If you’re responsible for paying German inheritance tax, you generally have one month to file an inheritance tax return.
Each heir has to file a return for their respective share of the estate – or, if there is an executor, they will have to file the tax return.
If it’s not possible to submit the tax return in this time, an extension will be granted in most cases, but this must be applied for.
Inheritance tax can be paid online or sent in the post.
Who pays German inheritance tax?
You’ll be liable to pay inheritance tax in Germany if either the beneficiary is a German taxpayer, the deceased was a German taxpayer, or certain assets are located in Germany.
The liability for paying inheritance tax depends on what’s been received.
In the case of an inheritance, it’s down to the heir to pay both inheritance tax and any debts left by the deceased.
If a donation has been received, both the donor and the recipient are jointly liable to pay.
However, in the case of a donation or bequest being made to a special cause (zweckzuwendung), the person who makes the donation or bequest is liable to pay any tax owed.
Reducing your inheritance tax in Germany
You can reduce your inheritance tax liability in Germany by deducting things such as funeral and administrative costs as expenses.
If you’re in the position where you can make a choice between inheritance tax in Germany and another country’s inheritance tax system, it’s worth checking which rules will best-suit your circumstances.
Those planning their estates who want to reduce the taxes their heirs are faced with could choose to pay in larger amounts to their pension, as money held within a pension is exempt from German inheritance tax.
Additionally, they could consider ensuring that the largest proportions of their estates goes to relatives that receive the highest tax allowance.