Inheritance tax and inheritance law in Germany
Taxation Researcher | November 05, 2021
The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Germany: what restrictions there are and whether making a will is advisable.
How high are inheritance taxes in Germany?
Inheritance tax is levied on transfers of property or assets after death. This duty is paid by the beneficiary. Applicable inheritance tax rates vary depending on the relationship of the beneficiary to the deceased. There are three relevant classes of relationship and exemptions applicable:
Categories of Beneficiaries:
- Class I: spouse and civil partners, children and step-children, parents and grandparents, great-grandchildren
- Class II: siblings (brothers, sisters) and their children (nephews, nieces), step-parents, parents-in-law, brothers-in-law, sisters-in-law, divorced spouse
- Class III: all other individuals
Transfers of property are subject to inheritance tax at graduated rates depending on the value of the property and the classes of family relationship (see below).
||Children and step-children, grandchildren||
||Parents and grandparents, Great-grandchildren|
|Source: Global Property Guide|
|TAX BASE, €||CLASS I||CLASS II||CLASS III|
|Up to €75,000|
|€75,000 – €300,000|
|€300,000 - €600,000|
|€600,000 - €6,000,000|
|€6,000,000 - €13,000,000|
|€13,000,000 - €26,000,000|
|Source: Global Property Guide|
Thanks to Oliver Braun from Martínez-Echevarría, Perez and Ferrero Law Offices
What inheritance laws apply in Germany?
The inheritance law of the nationality of the deceased is applicable in Germany.
In German international inheritance law, the applicable law is that of the nationality of the deceased at the moment of his/her death, subject to the following exceptions:
- If a deceased foreigner owns real property in another country under special rules, then German law recognizes these special rules, irrespective of the nationality of the deceased.
- If foreign international law refers inheritance issues back to German inheritance law (the so-called renvoi), then German law applies.
- Independently of his/her nationality, the owner of real property in Germany may determine that German inheritance law applies.
The competent authority for inheritance in Germany is the "Nachlassgericht" (probate court), a sub-division of the Local Court at the last place of residence of the deceased. In the Federal State of Baden-Württemberg, it is the Notary. For complaints against resolutions of the probate court, there is a specialised chamber in each District Court. The exact formal requirements and the approximate time for their completion vary a lot according to the complexity of each case, so that an exact estimate on the duration of inheritance proceedings in Germany cannot be given.
The German inheritance system includes statutory heirs.
In German inheritance law the main principle is universal succession, i.e. the deceased´s assets but also all his/her legal or contractual rights are transferred to the heirs, duties and obligations. If the inherited obligations exceed the value of the inherited rights and assets, it might be recommendable to refuse the inheritance.
German inheritance law, in the fifth book of the German Civil Code (BGB) sections 1922 et seq., says that, if there is no last will, a legal order of succession applies, based on the so-called "categories" and "clans" system, in which portions are reserved for certain statutory heirs. The spouse may also have a prior right to inherit, depending on the marital property regime. The community of statutory heirs is classified into categories (in practice, only the first three categories are relevant):
- The first category includes the deceased´s children (biological and adopted) and their descendants.
- The second category includes the deceased´s parents and their descendants (e.g. brothers, sisters or nephews.).
- The third category includes the grandparents and their descendants (i.e. the devisor´s uncles and cousins),
- and so on
Members of a lower category inherit only if there are no surviving members in a higher category i.e. the parents of the deceased do not inherit if the deceased leaves children.
A clan consists of one person, his ascendants, and descendants (including biological and adopted children). Spouses and step-children are not members of a clan. A statutory heir excludes from inheritance all other members of his clan who are related to the deceased through him. This means that if the deceased leaves children, the grandchildren do not inherit. All children inherit in equal shares.
Statutory heirs are entitled to a reserved portion.
As a general principle, the descendants (children and grand-children), spouse and parents of the deceased are entitled to a reserved portion; however, the reserved portion does not apply in every case. It applies only if the will of the deceased excluded any statutory heirs from the succession. For example, if the deceased, in his will, excludes one of his children from inheriting, then the deprived child is entitled to a reserved portion. The reserved portion consists of a claim for the payment of money against the community of heirs. The amount which can be claimed is one half of the statutory reserved portion. This claim comes under the statute of limitations after three years.
The share of the surviving spouse is generally increased by ¼ if there are surviving relatives in the first category, by ½ if the only surviving relatives are in the second category, or are the deceased´s grandparents. With no surviving relatives in the first or second categories, or grandparents, the spouse inherits 100%. The inheritance of the spouse is also influenced by the marital property regime (e.g. community of accrued gain, or division of goods).
Several kinds of wills are possible and admissible in Germany.
The most important will in Germany is the testament. Other types are the contract of inheritance and the joint testament. Legacies are also possible and usual. In order to fulfil the legal requirements for validity, it is advisable to notarise a will before a German notary, who makes sure that all the legal requirements are complied with. This, however, is not necessarily required. Private or foreign testaments can be valid and admissible, too. However, there might arise difficulties regarding the proof of the identity, the exact wording and, very important, the date of the will.
It is important that a will can be found by the heirs after the death of the testator. It is possible to deposit a will for safe keeping at the competent Local Court.
Donations during the lifetime of the property-owner are subject to tax.
Donations of property during the lifetime of the owner, to dispose of an anticipated inheritance, are frequent in Germany. At least, they were frequent under the old legislation. Although the tax on a donation did not differ from the inheritance tax, it was in some cases more profitable to donate a real property instead of inheriting it, especially if the tax value of an expensive property was considerably lower than its market value. This, however, might now be subject to change under new legal regulations.
If, due to a donation during the lifetime of the owner, a statutory heir is deprived of his inheritance, he may, under certain circumstances and within certain deadlines, subsequently contest the donation.
Ownership of property.
The ownership of real property in Germany is registered in the so-called "Grundbuch", the land registry which is administrated by Local Courts. This registry contains in three sections the relevant information on the ownership, encumbrances and land charges of real property. Contracts on the transfer of real property, be it a donation or a sale, must be notarised in order to be valid and then, the transfer of ownership needs to be registered in the land registry. If a foreigner inherit real property in Germany, of course, the transfer of ownership to the foreigner must also be registered.
If a foreigner is married, depending on the marital property scheme, a special rule might apply if the foreigner wants to buy, sell or donate real property, especially if he/she wants to acquire the property alone, without his/her spouse.
Inheritance of property by children.
From a legal point of view, it is possible for children to inherit real property. However, special regulations may apply for the responsibility of the minor regarding debts of the inherited assets.
If a minor inherits, the approval of a legal guardian is necessary. The guardian is normally a parent, but in certain cases, it might be necessary for the court to appoint a guardian. This is particularly important if real property is inherited and is to be sold in order to distribute the shares of the inheritance. In such a case, the guardianship court checks the selling price the property, and makes sure that the share paid to the minor equals his/her legal share of the inheritance.