The taxation of inheritances in Germany
Below, we first provide you with a calculator to estimate your expected inheritance tax. This is likely to be what interests you the most. Please note that the calculator offered here can only provide an indication of the scale of the tax burden and is subject to a precise and proper assessment of your individual case.
Following this, you will find some explanations to help you understand the taxation of inheritances in Germany and to recognize the underlying system.
Additionally, you will receive some guidance on how the inheritance tax process works.
A calculator for inheritance tax
This calculator for your inheritance tax has been compiled with the greatest care, but can be no more than an indication of the approximate figures to be expected for your case.
You should always have your inheritance tax return prepared by a competent advisor.
We cannot accept any liability for the accuracy of the calculations, despite all due care. We require very specific information for this, which can only be obtained on a case-by-case basis.
Should you discover any inaccuracies or even errors here, we would be grateful for any information at: info@office-ebert.com
A rough outline of the German inheritance tax system
German inheritance tax law - basics and practical examples
German inheritance tax law regulates the taxation of assets that are transferred by inheritance or gift. It is based on the provisions of the Inheritance Tax and Gift Tax Act (ErbStG) and takes into account the degree of relationship between the deceased and the heirs, the amount of the estate and deductions such as allowances and the flat-rate inheritance tax allowance.
1. tax classes in inheritance tax law
Heirs are divided into three tax classes depending on the degree of relationship:
- Tax class I:
- Spouses or registered partners, children, grandchildren (if the parents are deceased), stepchildren as well as parents and grandparents (only in the case of inheritances).
- This group benefits from the highest tax-free allowances and the lowest tax rates.
- Tax class II:
- Siblings, nieces/nephews, parents-in-law, children-in-law and step-parents.
- Here the tax-free amounts are significantly lower and the tax rates higher.
- Tax class III:
- All other persons, e.g. friends, distant acquaintances or unrelated business partners.
- This group has the lowest tax-free allowances and the highest tax rates.
2. tax-free allowances (§ 16 ErbStG)
Depending on the tax class, the following allowances apply, which are deducted from the inheritance:
- Spouses or registered partners: € 500,000
- Children (1st degree descendants): €400,000
- Grandchildren (if parents are deceased): 200.000 €
- Parents and grandparents (only in the case of inheritance): 100.000 €
- Siblings, nieces/nephews and all other persons: €20,000
In addition, the lump sum for inheritance costs of €10,300 can be claimed regardless of the degree of relationship (Section 10 (5) no. 3 ErbStG). This typically covers costs for the funeral, grave care and the opening of the will. A higher amount can be proven, but is rare.
3. progressive tax rate (§ 19 ErbStG)
The tax rate increases progressively depending on the taxable amount (after deduction of allowances and the lump sum for inheritance costs). The tax rates are graduated as follows:
- Tax class I: 7% to 30%
- Tax bracket II: 15 % to 43 %
- Tax bracket III: 30 % to 50 %
4. special features for spouses
Spouses benefit from a special position in German inheritance tax law. In addition to the tax-free allowance of € 500,000, a lump-sum equalization of gains amounting to 50% of the estate value is taken into account tax-free (§ 5 ErbStG). This significantly reduces the tax burden. This equalization of gains applies automatically if the marriage was based on the statutory matrimonial property regime of community of accrued gains.
As the equalization of accrued gains can raise complex legal issues, it is strongly recommended that you consult a qualified lawyer or tax advisor in such cases.
5 Practical examples
Example 1: Tax class I (spouses, children)
1st inheritance: € 20,000
- Allowance: € 500,000
- Lump sum for inheritance costs: €10,300
- Taxable amount: € 0
- Inheritance tax: € 0
2nd inheritance: € 1,000,000 (spouse)
- Allowance: € 500,000
- Lump sum for inheritance costs: €10,300
- Equalization of gains: 50 % of € 1,000,000 = € 500,000 (tax-free)
- Taxable amount after tax-free allowance and lump sums: € 0
- Inheritance tax: € 0
Example 2: Tax class II (siblings, nieces/nephews)
1st inheritance: € 500,000
- Allowance: € 20,000
- Lump sum for inheritance costs: €10,300
- Taxable amount: € 469,700
- Tax rates:
- 15 % on € 75,000 = € 11,250
- 20 % on € 300,000 = € 60,000
- 25 % on € 94,700 = € 23,675
- Total tax: € 94,925
Example 3: Tax class III (friends, distant acquaintances)
1st inheritance: € 5,000,000
- Allowance: € 20,000
- Lump sum for inheritance costs: €10,300
- Taxable amount: € 4,969,700
- Tax rates:
- 30% on €75,000 = €22,500
- 30% on €300,000 = €90,000
- 30% on € 600,000 = € 180,000
- 50 % on € 3,994,700 = € 1,997,350
- Total tax: € 2,289,850
6. disclaimer and additional note
Both the calculator and the presentation in text form have been prepared with the utmost care. Unfortunately, errors cannot be ruled out, as we have also found errors with other providers during our preparation of the presentations, both in text form and in calculators for inheritance tax. We cannot exclude the possibility of such errors. We are therefore always grateful for your feedback via our contact page.
Furthermore, the information and calculations presented above are for general guidance only. They are no substitute for individual advice from a qualified lawyer or tax consultant. Particularly in complex cases, such as the calculation of the equalization of accrued gains or the preparation of an inheritance tax return for foreign heirs, you should definitely consult an expert. Liability for the accuracy of the data and calculations presented is expressly excluded.
Conclusion
German inheritance tax law offers close relatives such as spouses and children significant advantages thanks to high tax-free allowances and the lump-sum inheritance tax allowance. For more distant relatives and friends, however, the tax burden is considerable. In the case of larger estates and complex inheritance cases, particularly those involving foreign countries, it is advisable to consult an expert.
The procedure for levying inheritance tax in Germany
Procedure for levying inheritance tax in Germany for heirs living abroad
Please note: If inheritance tax is levied in your own country, you must also declare your inheritance there! It is possible that you may have to pay inheritance tax in both countries. We can help you offset the tax paid abroad in Germany. When declaring the tax in your country, we can only do this to a very limited extent by communicating with your advisors at home and providing support with the transmission of documents and the like.
The levying of inheritance tax in Germany is subject to clearly defined regulations in accordance with the Inheritance Tax and Gift Tax Act (ErbStG). For heirs living abroad, there are some special features that affect the procedure. The procedure is explained in several steps below:
1. determination of tax liability
Tax liability depends on the place of residence of the deceased and the heir as well as the location of the assets.
- Unlimited tax liability: Heirs are subject to unlimited tax liability if the deceased or the heir had their domicile or habitual residence in Germany. In this case, all worldwide assets are taxed.
- Limited tax liability: If neither the testator nor the heir is resident in Germany, only the assets located in Germany (e.g. real estate or shares in German companies) are subject to tax.
An expert advisor can help to clarify the exact tax liability and its scope, especially in international inheritance cases.
2. tax notification to the tax office
The obligation to inform the tax office of the inheritance is limited for heirs living abroad:
- The three-month notification obligation pursuant to Section 30 ErbStG only applies to persons resident in Germany who inherit assets abroad.
- Heirs living abroad do not have to report an inheritance within three months. The tax office is usually informed by the probate court when a certificate of inheritance is applied for or a notarized will is opened (Section 34 ErbStG).
Nevertheless, it is advisable to inform the tax office proactively in order to avoid queries or delays in processing. Ideally, this information should be provided by an expert advisor in Germany.
3. submission of the inheritance tax return
The tax office requests the inheritance tax return. Heirs living abroad often have to submit the following documents:
- Death certificate
- Will or inheritance contract, if applicable with certificate of inheritance
- List of assets (worldwide assets and liabilities)
- Information on personal allowances and family relationships
Note: Foreign documents often require a translation by a sworn translator. An experienced advisor can ensure that all documents are submitted correctly.
4. valuation of the estate
The tax office will value the estate in accordance with German regulations.
- Real estate: The market value is determined using German valuation standards.
- Financial assets: Accounts and securities are valued according to their nominal value.
- Foreign assets: These are only subject to taxation if there is unlimited tax liability. Difficulties may arise here with the valuation, particularly in the case of foreign real estate or shareholdings.
An expert advisor will help to avoid problems with the valuation and to present the estate in full.
5. calculation of the tax
We have already written in detail above about the calculation of tax.
6 Offsetting against foreign taxes
If the heir also pays inheritance tax in another country, double taxation agreements (DTAs) or offsetting rules may apply:
- Germany has special DTAs with a few countries, such as the USA, to avoid double taxation.
- Without a DTA, taxes paid abroad can be credited against German tax under certain circumstances.
Here too, it is advisable to consult an advisor in order to avoid tax disadvantages or miscalculations.
7. tax assessment
The tax office issues the inheritance tax assessment, in which the tax to be paid and the payment deadline are specified.
- If there are problems with the assessment or calculation, the heir can lodge an appeal against the assessment.
- As a rule, the tax must be paid within one month of receipt of the assessment.
An expert advisor can ensure that the tax assessment is correct and that an appeal is lodged if necessary.
8 Special challenges for heirs living abroad
- Communication: Written communication with the tax office is often in German. Translators or legal representatives are therefore often required.
- Payment processing: Bank transfers from abroad may require additional time and fees.
- Advice: It is advisable to consult a tax advisor or lawyer with international experience to avoid errors or double taxation.
Summary
The procedure for levying inheritance tax on heirs living abroad is complex. While the three-month notification obligation only applies to German heirs with assets abroad, the tax authorities generally receive automatic notification of inheritance cases in Germany through notifications from the probate court. Early clarification with the tax office should take place via a competent advisor in Germany in order to avoid delays and unnecessary problems.
The result for you when we handle your estate:
The net amount in your account
The entire estate has been settled, all properties sold (if desired), the accounts closed and the assets transferred to you, all valuables realized and their proceeds paid out, the inheritance tax declared, the tax office's assessment checked and the tax paid.
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