Essentials and Duties for Heirs Regarding Inheritance Taxes in Germany
Germany imposes an inheritance tax (Erbschaftsteuer) on wealth transfers at death. The tax applies to individuals and businesses and is triggered when an heir acquires assets from a decedent. Understanding the rules and timelines is critical to avoid unnecessary costs.
Tax Liability
German inheritance tax is governed by the Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG). A taxable acquisition “at death” includes:
- Acquisition by statutory or testamentary succession,
- Acquisition by legacy (Vermächtnis),
- Transfers under an inheritance contract (Erbvertrag), and
- Claims to a compulsory share (Pflichtteil).
Key principle: the heir is taxed—not the estate.
Tax Classes and Exempt Amounts (Freibeträge)
The rate depends on the heir’s relationship to the decedent. German law recognizes three tax classes, each with fixed exemptions:
Tax Class I: spouses/registered partners, children, grandchildren (if their parent is deceased)
- Spouses/registered partners: €500,000
- Children: €400,000
- Grandchildren: €200,000
Tax Class II: siblings, nieces/nephews, children- and parents-in-law, former spouses
- Exempt amount: €20,000
Tax Class III: all other beneficiaries
- Exempt amount: €20,000
Amounts above the exempt threshold are taxable.
Tax Rates
Progressive rates apply to the taxable portion, ranging from 7% to 50%, depending on both the tax class and the value of the acquisition. Close relatives benefit from lower brackets.
Valuation of the Estate
For tax calculation, assets are valued at fair market value. Typical categories:
- Cash, bank deposits, and securities,
- Real property (valued at market value),
- Business interests and shares,
- Other assets.
Liabilities reduce the taxable base. Certain estate-related costs—e.g., funeral expenses—are deductible (commonly recognized up to €10,300).
Heir’s Obligations and Deadlines
After the decedent’s death, heirs must follow these steps:
- Notify the tax office (Finanzamt): Within three months of learning about the inheritance, notify the competent inheritance tax office (§ 30 ErbStG).
- File the inheritance tax return: The tax office may require a formal return.
- Pay the assessed tax: Once the assessment notice is issued, payment is typically due within one month.
Missing deadlines can trigger penalties and interest.
Exemptions and Relief
German law provides significant relief in specific cases:
- Family home: Transfers of a self-occupied family residence to a spouse or, under conditions, to children can be tax-exempt.
- Business assets: Special relief schemes apply to operating businesses, qualifying shareholdings, and agricultural property to preserve continuity.
In summary
Germany’s inheritance tax regime is technical and fact-sensitive. Early, precise planning—and strict compliance with deadlines—reduces exposure and preserves value.
How We Help
The German American Law Center, PLC guides clients through the full process, legal and tax coordination across jurisdictions when needed. Our services include:
- Assessing whether—and how much—German inheritance tax applies,
- Calculating applicable exemptions and rates,
- Structuring options to reduce the tax burden lawfully,
- Handling communications with the Finanzamt,
- Challenging unfavorable assessments where warranted.
Get timely, competent counsel to protect your inheritance.