Inheritance tax & gift tax
While a gift is a fortunate gain, an inheritance often comes with less positive circumstances, what both gifts and inheritances have in common is that inheritance and gift tax is triggered when assets are transferred without consideration if certain tax-free amounts are exceeded. Inheritance tax and gift tax are regulated in the same law (ErbStG) and are closely linked.
After receiving notification of an inheritance, you have a maximum of three months to inform the relevant tax office about your inheritance. The tax office will use the documents already submitted to assess whether there is a tax liability. If the inherited assets exceed the estate liabilities and the tax-free amount, the tax office will ask you to submit a corresponding inheritance tax return. We will of course assist you with this.
You receive a gift from a living person and, unlike an inheritance, both parties are liable to pay tax on a gift. Gifts can be made as an advance on future inheritances or so that the recipient waives their compulsory portion. In principle, the same tax rates apply to gifts as to inheritances. The only difference is that the respective tax-free amount may be claimed again every ten years. The deduction of a pension allowance is not permitted.
In the case of real estate, a distinction is made between rented and owner-occupied houses. As with the inheritance tax return, there is also a three-month deadline by which you must notify the tax office of your gift.
A common method of avoiding inheritance tax is to transfer assets that do not exceed the personal allowance every ten years.
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Allowances
The tax-free amounts depend on the relationship to the testator or donor. The closer this relationship is, the higher the tax-free amount.
| Spouses and registered partners | 500.000 EUR |
| Children, grandchildren whose parents are deceased and stepchildren | 400.000 EUR |
| Grandchildren | 200.000 EUR |
| Great-grandchildren, parents (inheritance) | 100.000 EUR |
| Parents (gift), siblings, nephews, nieces, step-parents, parents-in-law, children-in-law, divorced spouses | 20.000 EUR |
| All other heirs | 20.000 EUR |
Pension allowances for heirs
| Spouses and registered partners | 256.000 EUR |
| Children up to the age of 5 | 52.000 EUR |
| Children aged 6 - 10 years | 41.000 EUR |
| Children aged 11 - 15 years | 30.700 EUR |
| Children aged 16 - 20 years | 20.500 EUR |
| Children aged21 - 27 years | 10.300 EUR |
Tax classes
The Inheritance and Gift Tax Act recognizes three tax classes. Tax class I applies to spouses, children, grandchildren, stepchildren, grandparents and parents.
Tax class II includes divorced spouses, brothers, sisters, step-parents, parents-in-law, nieces, nephews and children-in-law.
All other heirs and donees belong to tax class III.
Tax rates
How much you actually have to pay in inheritance or gift tax depends on your tax bracket and the assets reduced by liabilities and certain costs. A graduated rate applies.
The lower the assets received, the lower the tax payable. If your acquired assets amount to a maximum of EUR 75,000, you will have to pay 7% tax as a spouse (tax class I), 15% as a sibling (tax class II) and 30% as a non-relative (tax class III).
Inheritances/gifts of up to 300,000 euros are taxed at 11%, 20% and 30% respectively. If your assets slightly exceed the maximum amount stated in the table, a hardship equalization is carried out in certain cases.
Tax exemptions
The Inheritance Tax Act provides for tax exemptions for family businesses. This is because the legislator assumes that the inheritance or gift tax you would have to pay would significantly reduce the company's liquidity and cost jobs.
For this reason, agricultural and forestry businesses in particular are protected. Rented residential buildings benefit from a tax relief discount in the event of inheritance.
Inherited household goods up to a maximum value of 41,000 euros are not subject to tax deduction. The tax exemption also applies to occasional gifts.
