Germany: inheritance tax, allowances, tax classes and deadlines

Three tax classes

Taxable is the enrichment of the acquirer, as far as it is not tax-free (§ 10 para. 1 ErbStG). How much stays tax-free and how high the rate is depends on the relationship to the deceased or donor. The law knows three tax classes (§ 15 ErbStG): Class I includes spouses and partners, children and stepchildren, their children and, for an inheritance, also parents and ancestors. Class II covers, for a gift, parents, as well as siblings, nieces and nephews, step-parents, children-in-law, parents-in-law and divorced spouses. All others, including unmarried partners and friends, belong to class III.

Allowances and tax rates

The allowance is €500,000 for spouses, €400,000 for children and children of deceased children, €200,000 for grandchildren, €100,000 for the other persons of class I and €20,000 each for classes II and III (§ 16 ErbStG). Only the acquisition above it is taxed, rounded down to full €100 (§ 10 para. 1 ErbStG).

The rate rises in seven steps. In class I it is 7% up to €75,000, 11% up to €300,000, 15% up to €600,000, 19% up to €6 million, 23% up to €13 million, 27% up to €26 million and 30% above. In class II 15 to 43% apply, in class III 30% and from €13 million 50% (§ 19 ErbStG). The rate applies to the whole taxable acquisition, not only the part in the step; if the acquisition exceeds a step only narrowly, the hardship relief softens the jump. Example: a child inherits €700,000. After the flat amount €685,000 remains, after the allowance €285,000, and at 11% that is €31,350 of tax.

What stays tax-free or reduces the acquisition

On an inheritance the law deducts a flat €15,000 for the funeral, gravestone, grave care and settling the estate, with no proof (§ 10 para. 5 no. 3 ErbStG). Household goods, linen and clothing stay tax-free in class I up to €41,000, other movable items such as a car up to €12,000 (§ 13 para. 1 no. 1).

The family home in which the deceased lived to the end is tax-free for the surviving spouse and for children up to 200 m² of living space, if they move in without delay and live there themselves for ten years; otherwise the exemption lapses retroactively (§ 13 para. 1 nos. 4b and 4c). Whoever cared for the deceased keeps up to €20,000 tax-free (no. 9). Spouses and children also get the special pension allowance of up to €256,000 and €52,000 respectively, reduced by the capital value of survivors’ pensions (§ 17), and under the statutory property regime the equalization of accrued gains stays tax-free (§ 5).

Gifts during life

Acquisitions from the same person are added together within ten years: earlier ones are added to the last, and from the tax on the total the tax that would fall on the earlier acquisitions is deducted. The tax for the last acquisition alone may not be undercut (§ 14 ErbStG). Whoever gives every ten years can therefore use the allowance again and again: a child gets, for example, €400,000 from each parent. The family home exemption applies to gifts only between spouses (§ 13 para. 1 no. 4a).

Deadlines and notification

You must notify the tax office of every acquisition in writing within three months of learning of the succession (§ 30 ErbStG). Exempt are acquisitions under a will that a German court or notary has opened and from which the relationship to the deceased appears, as long as no real estate, business assets, shares in corporations or foreign assets are included. The tax office can ask for a tax return, with a period of at least a month (§ 31).

Whoever does not want to accept an overindebted or unwanted inheritance has only six weeks to disclaim it; the period starts when you know of the succession and the reason for it, for a will not before it is announced by the probate court (§ 1944 BGB). Whoever later sells an inherited house counts the ten-year period of the speculation tax from the purchase by the deceased.

What the calculation does not know

Business assets, agricultural and forestry assets and foreign assets have their own rules, and the tax office sets the values of real estate and holdings. For large estates, disputes among heirs or a business, a tax adviser or a specialist inheritance lawyer is worthwhile.