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Inheritance tax in Germany

Updated on
Inheritance Tax
Romolo Tavani / Shutterstock

The inheritance tax is one of the mandatory taxes in Germany for individuals who pay income tax.

Germany applies the inheritance law – Erbrecht. If no will was left by one spouse, the other does not automatically receive the inheritance. The law requires the formation of an Erbengemeinschaft (inheritance group), which also includes relatives of the deceased. In this case, the heirs individually do not own anything, but together they are considered owners of all the estate. In order to divide the inheritance, they will have to come to an agreement. The intestacy in Germany is, therefore, a serious problem for those who come into an inheritance.

If the testator has children or grandchildren, other relatives lose their rights of succession. Half of the estate will go to the spouse and the other half will be divided equally among the descendants. In addition, there is a law that protects minor heirs. Parents cannot sell their children's property without a court order.

When the inheritance tax is not payable?

  • Husband or wife of the deceased spouse inherits his or her residential property;
  • Children inherit from a parent a house of no more than 200 square metres. In this case, the heirs may sell the property only 10 years after coming into the inheritance;
  • The testator used the house himself before his death;
  • The inheritance includes works of art and jewellery.

Banks usually inform the tax office of the fact of inheritance. If this is not the case, the heirs must contact the tax office within three months of receiving the inheritance and submit the tax return. Tax registration usually takes a few weeks, but sometimes the process is delayed. If no notification of the tax due has been received within four years of filing the tax return, you do not have to pay the tax because of the statute of limitations.

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What is the procedure for property inheritance in Germany?

In Germany, there are two ways of inheriting: by law and by will.

If the deceased did not leave a will, the inheritance is divided by the right of succession. The spouse and relatives of the deceased are recognised as legal heirs.

Relatives fall under the first, second, third, fourth or fifth kinship categories (Ordnung):

  1. Direct descendants - children, grandchildren, great-grandchildren;
  2. Parents and siblings of the deceased;
  3. Grandparents with their direct descendants: uncles and aunts, cousins, nieces/nephews;
  4. Second cousins;
  5. All other relatives.

If the testator has at least one first-category relative – a child, grandchild, or great-grandchild – all other relatives cannot claim the inheritance. When there are no direct descendants, the inheritance goes to the relatives of the second category – parents, brothers and sisters of the deceased. If they are no longer alive, then come the third-category relatives, and so on.

The important thing is that the order of succession is related to the share of the inheritance. Inheritance is divided equally between the spouse and first-category heirs. Second-category heirs will receive a maximum of a quarter. Relatives of the third category and all other relatives may claim the property only if the deceased has no surviving spouse. By law, stepchildren and descendants of a spouse are not recognised as heirs.

Drawing up a will

If a will is made, the inheritance is distributed in accordance with the last will of the deceased. The heirs are notified of such will.

It is possible to leave a will for any person or organisation, regardless of family ties. And the person making the will has the right to divide the property between the heirs in any proportion. They may also determine conditions for the heirs, by fulfilling which they will receive the inheritance. However, first and second-category relatives have the right to contest the will within three years if they were entitled to a larger share under the law.

Two options for drawing up a will:

  1. A handwritten will with a clear expression of the last will;
  2. A notarized will.

The heir has the right to renounce his or her inheritance within six weeks of learning of the relative's death. For those who do not live in Germany, this period will be six months. If the court does not receive a renunciation within this time, the inheritance is automatically deemed to have been accepted.

Renunciation of inheritance

The heirs receive the entire estate of the deceased: both his assets and liabilities. In order to avoid inheriting debts, there is a renunciation procedure. This will also allow them to avoid paying for the funeral expenses.

If you wish to refuse to enter into an inheritance, you must apply within six weeks to the probate court (Nachlassgericht), which is located at each district court (Amtsgericht). Drawing up a protocol will cost about 20 euros. Personal attendance is compulsory.

Inheritance tax classes

Heirs in Germany are divided into three tax classes depending on the familial relationship. The first class includes spouses, children, grandchildren, parents and grandparents. All other relatives fall into the second class. And the third class includes those heirs who are not related to the testator. The tax-free amount of inheritance is determined by the tax class.

Tax-free amount depending on the class

Class

Degree of relationship

Tax-free amount, €

I

Spouses or registered partners

500,000

Children (including stepchildren and children of the spouse from another marriage)

400,000

Grandchildren who have inherited in place of the testator's children in the event of their death

400,000

Grandchildren

200,000

Great-grandchildren and other descendants

100,000

Parents, grandparents

100,000

II

Siblings

20,000

Nieces/nephews

20,000

Step-parents

20,000

The in-laws

20,000

Divorced spouses

20,000

III

Other heirs

20,000

Source: haus.de

The spouse is exempt from the inheritance tax on the amount of up to half a million euros, children – on the amount of up to 400,000 euros, grandchildren – on the amount of 200,000 euros and parents – on the amount of 100,000 euros. The tax rates apply to the remaining amount received after deducting the tax-free portion. This is a progressive tax: its amount depends on the size of the inheritance received.

Inheritance tax scale by class

Inheritance amount after deduction, €

Tax rate in Class I, %

Tax rate in Class II, %

Tax rate in Class III, %

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

Source: haus.de

Thus, the closer the kinship, the less tax the heir pays. In the case of a gift of property to relatives, the same principle of tax calculation and similar rates apply.

For non-residents, different rules apply and the calculation is done individually.

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