German Inheritance Tax
von Peter Scheller
Germany taxes the acquisition of property upon death and gifts inter vivos. In addition, there are other taxation events, such as a substitute inheritance tax for family foundations. Inheritance tax is not an estate tax, but a transfer tax.
German inheritance tax law is based on the following principles:
1. Tax liability
There are resident and non-resident taxable persons. Resident taxable persons are the testator, the donor or the receiver who have their domicile or habitual abode in Germany. There are special rules for German citizens who relocate to a low-tax jurisdiction. In the case of a resident person, worldwide assets are covered.
Non-resident taxable persons are those who have neither their domicile nor their habitual abode in Germany. In the case of these persons, only the domestic assets are taxed.
2. Valuation
The valuation is generally carried out at the fair market value. Special valuation rules apply especially to businesses, real property, and company shares.
3. Deduction of debts
Debts of the decedent may be deducted if they are economically related to the taxable estate. Heirs may also deduct legacies. In addition, the following expenses can be deducted: Ffuneral expenses, costs of the grave memorial and the usual grave maintenance costs and costs of estate settlement.
4. Tax classes
Major taxation consequences (tax rates, personal allowances) depend on the respective tax class. The tax class depends on the relationship between the testator or donor and the receiver.
There are three tax classes:
| Tax class | Family relation to testator / donor |
|---|---|
| Tax classI | Family relation to testator / donorSpouses, registered partners, children, stepchildren, grandchildren, parents and grandparents in cases of succession |
| Tax classII | Family relation to testator / donorParents and grandparents in other cases, nephews, nieces, parents- or children-in-law |
| Tax classIII | Family relation to testator / donorOther persons |
5. Tax exemptions and allowances
There are various material tax exemptions, such as for household items up to a value of 41,000 Euros. In addition, there are full or partial exemptions for business assets, substantial participations in corporations and residential real estate.
There are also personal allowances. For resident taxable persons, these are:
| Tax class | relation | Euro |
|---|---|---|
| Tax classI | relationSpouses / Registered partners | Euro500.000 |
| Tax classI | relationChildren, stepchildren, grandchildren of deceased children | Euro400.000 |
| Tax classI | relationgrandchildren | Euro200.000 |
| Tax classI | relationOther persons of tax class I | Euro100.000 |
| Tax classII + III | relationOther persons | Euro20.000 |
Under certain conditions, the spouse may claim a special pension allowance of 256,000 Euro.
For non-resident taxable persons, corresponding allowances can be claimed under certain conditions.
6. Tax rates
The following tax rates are applicable:
| Value of taxable transfer up to Euro | Tax class I % | Tax class II % | Tax class III % |
|---|---|---|---|
| Value of taxable transfer up to Euro75.000 | Tax class I %7 | Tax class II %15 | Tax class III %30 |
| Value of taxable transfer up to Euro300.000 | Tax class I %11 | Tax class II %20 | Tax class III %30 |
| Value of taxable transfer up to Euro600.000 | Tax class I %15 | Tax class II %25 | Tax class III %30 |
| Value of taxable transfer up to Euro6.000.000 | Tax class I %19 | Tax class II %30 | Tax class III %30 |
| Value of taxable transfer up to Euro13.000.000 | Tax class I %23 | Tax class II %35 | Tax class III %50 |
| Value of taxable transfer up to Euro26.000.000 | Tax class I %27 | Tax class II %40 | Tax class III %50 |
| Value of taxable transfer up to Eurohöhere Beträge | Tax class I %30 | Tax class II %43 | Tax class III %50 |
7. International aspects
Irrespective of tax law, the different concepts of estate or inheritance law in different countries and international regulations such as the EU Inheritance Regulation play a role.
If a person is a resident taxable person in Germany and simultaneously incurs German and foreign inheritance tax, the foreign inheritance tax can be credited against the German inheritance tax. However, this only applies to the tax due on transfers of foreign real property, foreign business assets, corporations domiciled or managed abroad and other foreign assets. However, this does not apply to securities or financial assets. In this respect, double taxation may occur. In the case Block (ruling of February 12, 2009 - C-67/08), the European Court of Justice found that double taxation in a German-Spanish inheritance case does not violate European liberty rights.
Double taxation is prevented if a double taxation treaty exists. For inheritance tax, however, Germany has concluded inheritance DTTs with only six countries. These are Denmark, France, Greece, Sweden, Switzerland, and the USA.
Author: Peter Scheller, Steuerberater, Master of International Taxation, Fachberater für Zölle und Verbrauchsteuern, www.scheller-international.com
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