Inheritance tax (Erbschaftsteuer) and gift tax (Schenkungsteuer) follow the same law in Germany. The amount depends on the value of what you receive and on your relationship to the deceased or donor. Spouses and children receive high allowances and pay low rates. Siblings, friends and unmarried partners pay much more.
For expats, the first question is whether German tax applies at all. It often applies even if part of the assets is abroad.
When Does German Tax Apply?
Unlimited tax liability applies if the deceased or donor, or the heir or recipient, was resident in Germany at the time of the transfer. German citizens remain liable for five years after moving abroad. In these cases, all assets worldwide are taxed.
Limited tax liability applies if neither side lives in Germany, but German assets such as real estate or business assets in Germany are transferred.
Foreign inheritance tax on assets abroad can usually be credited against German tax. Germany has inheritance tax treaties with only a few countries, including the USA, France, Switzerland, Denmark and Sweden.
Allowances
| Recipient | Tax class | Allowance |
|---|---|---|
| Spouse or registered partner | I | €500,000 |
| Children and stepchildren | I | €400,000 |
| Grandchildren | I | €200,000 |
| Parents and grandparents (inheritance) | I | €100,000 |
| Siblings, nieces, nephews, parents-in-law | II | €20,000 |
| Unmarried partners, friends, others | III | €20,000 |
Surviving spouses also receive a special pension allowance of up to €256,000, and children receive age-dependent allowances.
Tax Rates
| Taxable amount up to | Class I | Class II | 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% |
| above | 30% | 43% | 50% |
The rate applies to the entire taxable amount, not only the part above the threshold.
Exemptions
- Family home. A spouse inherits the family home tax-free if they live in it for ten years. Children can inherit it tax-free up to 200 square metres of living space under the same condition.
- Household goods. Up to €41,000 per person in class I.
- Business assets. Large reliefs are available if the business is continued.
- Rented residential property. Only 90 percent of the value is taxed.
Gifts During Your Lifetime
Gifts are taxed like inheritances, with the same allowances. Because allowances renew every ten years, regular gifts during your lifetime can reduce the tax considerably. A parent can, for example, give each child €400,000 tax-free every ten years.
Procedure
Heirs must report the inheritance to the tax office within three months. Banks, insurers and notaries also report to the tax office. The tax office then decides whether a tax return is required.
Points for Expats
- Unmarried couples pay high tax. Marriage or a registered partnership changes the tax class from III to I.
- Moving abroad does not end German tax for German citizens for five years.
- Assets abroad are included when one side lives in Germany. Keep records of foreign tax paid.
Frequently Asked Questions
Is life insurance subject to inheritance tax?
Usually yes, if the deceased paid the premiums and the payout goes to the beneficiary.
Are debts deducted?
Yes. The deceased's debts and funeral costs reduce the taxable amount.
Do I pay tax on an inheritance from abroad if I live in Germany?
Yes. As a German resident, you are taxed on inheritances from abroad, with credit for foreign tax.
