How does the inher­i­tance tax in Ger­many work?

Inher­i­tance tax in Ger­many is a tax on the prop­er­ty of a deceased per­sons, if this is inher­it­ed to oth­er per­sons. It is based on the val­ue of the assets and prop­er­ty that the deceased indi­vid­ual leaves behind, which is known as the “estate.” The tax is gen­er­al­ly levied on the ben­e­fi­cia­ries who inher­it the assets from the deceased person.

Fur­ther­more, the same cal­cu­la­tion / sys­tem applies, when the estate is giv­en as a “present”, so in this case, it is a “present tax” (§ 1 Nr. 2 Erb­StG).

To set­tle the inher­i­tance tax in Ger­many, the ben­e­fi­cia­ries have to sub­mit a tax return to the rel­e­vant tax author­i­ty. This return includes details about the assets, their val­ues, and the ben­e­fi­cia­ries’ rela­tion­ship to the deceased. The tax amount is cal­cu­lat­ed based on the val­ue of these assets and oth­er information.

What is the tax rate and the amount of the inher­i­tance tax in Germany?

The amount of the inher­i­tance tax in Ger­many depends on dif­fer­ent fac­tors, includ­ing the net asset val­ue, the rela­tion­ship between the deceased per­son and the ben­e­fi­cia­ries, and any applic­a­ble deduc­tions or exemptions.

Close rel­a­tives such as spous­es and direct descen­dants are grant­ed exemp­tions or low­er tax rates com­pared to more dis­tant rel­a­tives or unre­lat­ed indi­vid­u­als. To the exemp­tions, please see the ques­tion about the struc­ture of the inher­i­tance tax law (below).

How should I pay the inher­i­tance tax in Ger­many if I have no liquidity?

Often, the inher­it­ed assets are not “liq­uid”, for exam­ple real estate. So there may not be suf­fi­cient liq­uid­i­ty to pay the inher­i­tance tax in Ger­many, and ben­e­fi­cia­ries would need to sell the assets or take a cred­it to pay the inher­i­tance tax. If this is not pos­si­ble in short term, usu­al­ly it is pos­si­ble to apply for a defer­ral at the finan­cial authority.

How is the struc­ture of the inher­i­tance tax law in Ger­many?

The inher­i­tance tax in Ger­many is reg­u­lat­ed by the Erb­schaft­s­teuerge­setz (Inher­i­tance Tax Act).

The key points of the Ger­man Inher­i­tance Tax Act include:

• Tax­able Per­sons and Beneficiaries:
  • The tax is levied on both Ger­man res­i­dents and non-res­i­dents who inher­it assets locat­ed in Ger­many (§ 2 Erb­StG).
  • Ben­e­fi­cia­ries can be every­one: rel­a­tives (e.g., spous­es, chil­dren, par­ents), but also non-relat­ed indi­vid­u­als and organizations.
• Tax Rates:
  • The tax rates vary based on the val­ue of the inher­it­ed assets and the rela­tion­ship between the deceased and the ben­e­fi­cia­ry. In gen­er­al, the tax rate is reg­u­lat­ed in § 19 Erb­StG:

• Allowances
  • Spous­es and reg­is­tered part­ners are gen­er­al­ly exempt from inher­i­tance tax. 
  • For oth­er rel­a­tives, there are spe­cif­ic tax-free allowances depend­ing on the degree of kinship.
  • Non-relat­ed ben­e­fi­cia­ries are sub­ject to high­er tax rates, and their tax-free allowances are gen­er­al­ly lower
  • The above men­tioned allowances are reg­u­lat­ed in § 16 Erb­StG:

• Val­u­a­tion of Assets:
  • The val­ue of the inher­it­ed assets must be deter­mined as of the date of death of the deceased.
  • Dif­fer­ent val­u­a­tion meth­ods are used for dif­fer­ent types of assets, such as real estate, secu­ri­ties, and busi­ness assets. Accord­ing to § 12 Erb­StG, the val­u­a­tion meth­ods from the val­u­a­tion tax law (Bew­er­tungs­ge­setz) have to be applied.
• Deduc­tions:
  • The Inher­i­tance Tax Act pro­vides cer­tain deduc­tions to reduce the tax­able amount. They are reg­u­lat­ed for exam­ple in §§ 13 and 13a Erb­StG.
  • For instance, busi­ness assets may qual­i­fy for sig­nif­i­cant reduc­tions or full exemp­tion to ensure the con­ti­nu­ity of busi­ness­es after the owner’s death.
• Fil­ing and Payment:
  • The ben­e­fi­cia­ries are respon­si­ble for the dec­la­ra­tion of the inher­i­tance tax return and the pay­ment of the inher­i­tance tax-
  • The tax return has to be sub­mit­ted to the finan­cial author­i­ty with­in three months after the date of the death.
  • Pay­ment of the inher­i­tance tax is due with­in six months after the date of death.
• Penal­ties and Enforcement:
  • As every oth­er tax in Ger­many, also if the inher­i­tance tax in Ger­many is declared or paid to late, this may result in penal­ties and inter­est charges.
  • Tax author­i­ties can con­duct audits and investigations.

An exam­ple how the inher­i­tance tax in Ger­many for real estate is calculated? 

Let’s look at the fol­low­ing exam­ple: a per­son lives in Eng­land and inher­it­ed a prop­er­ty from his/her uncle who also lives in Eng­land. The prop­er­ty is locat­ed in Ger­many. It is a 4‑room apart­ment in Munich, 100 square meters. 

The inher­i­tance tax is cal­cu­lat­ed accord­ing to fol­low­ing structure:

1. Val­u­a­tion of the Inher­it­ed Prop­er­ty: The val­ue of the inher­it­ed prop­er­ty (4‑room apart­ment in Munich, 100 sqm) needs to be deter­mined as of the date of the uncle’s death. As explained above, the val­u­a­tion is done accord­ing to § 12 Erb­StG based on the rules of the val­u­a­tion tax law (Bew­er­tungs­ge­setz). For real estate prop­er­ty, dif­fer­ent fac­tors need to be con­sid­ered, for exam­ple the qual­i­ty of the build­ing, the val­ue of the ground, whether the apart­ment is rent­ed or not…
   For this exam­ple, let’s assume that the prop­er­ty was appraised at 400.000 EUR.
2. Rela­tion­ship to the deceased per­son: accord­ing to § 15 Erb­StG, nieces and nephews are clas­si­fied as “Steuerk­lasse II” (tax class II) beneficiaries.
3. Tax-Free Allowance (Frei­be­trag): accord­ing to § 16 EStG, the tax-free allowance for “Steuerk­lasse II” ben­e­fi­cia­ries is 20.000 EUR for inher­i­tances from uncles and aunts.
4. Tax­able Amount: To cal­cu­late the tax­able amount, we sub­tract the tax-free allowance from the val­ue of the inher­it­ed prop­er­ty: Tax­able Amount = 400.000 EUR — 20.000 EUR = 380.000 EUR.
5. Tax Rates: accord­ing to § 19 Erb­StG, the inher­i­tance tax rates for “Steuerk­lasse II” ben­e­fi­cia­ries in Ger­many are as follows:
   • Up to 75,000 EUR: 15%
   • Between 75,001 EUR and 300.000 EUR: 20%
   • Above 300.000 EUR: 25%
6. Cal­cu­la­tion of Inher­i­tance Tax: Now, we apply the respec­tive tax rates to the tax­able amount:
   • 75.000 EUR x 15% = 11.250 EUR
   • (300.000 EUR — 75.000 EUR) x 20% = 45.000 EUR
   • (380.000 EUR — 300.000 EUR) x 25% = 20.000 EUR 
   • So in total, the inher­i­tance tax is = 11.250 EUR + 45.000 EUR + 20.000 EUR = 76.250 EUR.

How to con­tin­ue / con­tact to us

We as eng­lish speak­ing tax advi­sors can file the dec­la­ra­tion of the inher­i­tance tax in Ger­many and com­mu­ni­cate with the finan­cial author­i­ty on your behalf.

You can con­tact us by using one of these phone num­bers or the mail address.