German inheritance tax - tax free allowances

Germany taxes the acquisition of the beneficiary and not the estate. The tax allowance under the German Inheritance Tax Act (Erbschafts- und Schenkungsteuergesetz) depends on the family relation between deceased and beneficiary. According to § 16 (1) German Inheritance Tax Act - in case of unlimited tax liability - the following tax free allowances apply:

 

 

 Beneficiary is ...

Amount in EURO

the spouse of the deceased

500.000

divorced spouse

20 000

a registered same sex partner

500.000

a child of the deceased (including step-children)

400 000

a child of a predeceased child the deceased

400 000

an offspring of living children of the deceased

200 000

a parent or an other ascendant

100 000

a sibling (sister or brother) of the deceased

20 000

a niece and nephew of the deceased

20 000

a step-parent of the deceased

20 000

a parents-in-law of the deceased

20 000

a daughters-in-law or son-in-law of the deceased

20 000

an other person 

20 000

 

 

In the case of Opens internal link in current windowsitus taxation the allowance is only EUR 2000 unless a bilateral contract provides otherwise (see Opens internal link in current windowGerman - American agreement for the avoidance of double taxation).

 

On April 22, 2010, the European Court of Justice (ECJ) held that § 16 (2) of the German Inheritance Tax Act (Erbschaftsteuer- und Schenkungssteuergesetz) breached the provisions on the free movement of capital contained in article 56 of the EC Treaty. The Court held that it breached the treaty insofar as it denied the full gift tax allowance to a Dutch resident who was gifted real estate situated in Germany by her mother who was also a Dutch resident (Vera Mattner v. Finanzamt Velbert, C-510/08). In March of 2011, the European Commission formally requested that Germany amend § 16 (2) German Inheritance Tax Act.

 

 

As a consequence of the ECJ’s ruling, Germany added a new section to § 2 German Inheritance Tax Act. According to § 2 Abs. 3 S. 1 German Inheritance Tax Act a beneficiary can chose that the rules of unlimited taxation apply, if either the decedent or the beneficiary resides in the EU or the EEA. If he chooses the application unlimited taxation of his acquisition, his whole acquisition, irrespective where the assets are situated, will be taxed in Germany. However, he will profit from the full tax allowance.

  

The tax free allowance renews every ten years (see § 14 German Inheritance Tax Act). The tax free allowances are granted inter persona.

 

Example:

 

A gives EUR 400.000 to his son B and EUR 400.000 his daughter C. No taxas are due. 

 

In addition to the tax free allowance under § 16 of the German Inheritance Tax Act, a special tax free amount may be granted to the spouse (see § 19 German Inheritance Tax Act). Certain estate assets are tax free (e.g. home).

 

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2009 © Jan-Hendrik Frank (Rechtsanwalt und Fachanwalt für Erbrecht)