Why inheritance tax is likely to rise in Germany in 2023
People in Germany inherit a combined total of around €400 billion a year, and starting this year, more of that is likely going to the government.
How much extra tax though? Well, that’s still unclear.
The federal 'traffic light' coalition, made up of the Social Democrats (SPD), Greens and Free Democrats (FDP), is currently in the midst of negotiating a revised law on inheritance tax – or the amount of money someone living in Germany pays in tax when someone passes away and leaves money to them. Inheritance law applies to anyone living in Germany receiving something from someone who has passed on – even if the person leaving money didn’t live in Germany.
First and foremost, the changes will affect people who inherit real estate. In late December, the Bundestag passed a law changing how the value of a property should be calculated when someone inherits it to more closely reflect the property’s current market rate, rather than what it might have been worth when it was originally bought.
Experts say that means people inheriting real estate will probably pay more tax, because the property will be valued around 20-30 percent higher than it would’ve been before the new law was passed.
Are there tax exemptions?
Yes.
Because of these exemptions, many inheritances in Germany don’t end up being taxed. When a spouse dies, their partner can inherit up to €500,000 tax-free, with only amounts above that being subject to tax. For children inheriting from their parents, that exemption is €400,000.
Around half of all inheritances in Germany are less than €33,000. The average inheritance comes in at around €80,000. Those are well below the exemption rates, so most people don’t have to worry about paying tax on them. In general, spouses and children who inherit a property that they then live in also won’t pay tax on that property if it’s less than 200 square metres and they live in it for 10 years.
These exemptions, however, were set in 2009 and property value in particular has risen a lot since then. A lot of German real estate is now priced above the exemption rates, meaning many people inheriting property in the future may end up paying a lot more tax than before.
READ ALSO: What experts say will happen to the German housing market in 2023
The liberal FDP are currently negotiating with the other government parties – the Greens and SPD – to raise these exemption rates, but it’s not clear yet what the final numbers will be.
What about real estate price differences around Germany?
That's one of the reasons the state of Bavaria is suing the federal government over the current inheritance tax law.
With some of the highest property prices in Germany, Bavarian premier Markus Söder is arguing that a blanket inheritance tax isn’t fair, because €400,000 goes a lot further in Saxony-Anhalt’s property market than it does in Bavaria’s – for example.
That’s why Bavaria’s state government asked the German Federal Constitutional Court to review the inheritance tax law in December, which Söder says should "open the way for an urgently needed increase in tax exemptions and inheritance tax on a regional basis".
Vocabulary
Inheritance – (die) Erbschaft
Inheritance Tax – (die) Erbschaftsteuer
Property or real estate – (die) Immobilien
Will – (das) Testament
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How much extra tax though? Well, that’s still unclear.
The federal 'traffic light' coalition, made up of the Social Democrats (SPD), Greens and Free Democrats (FDP), is currently in the midst of negotiating a revised law on inheritance tax – or the amount of money someone living in Germany pays in tax when someone passes away and leaves money to them. Inheritance law applies to anyone living in Germany receiving something from someone who has passed on – even if the person leaving money didn’t live in Germany.
First and foremost, the changes will affect people who inherit real estate. In late December, the Bundestag passed a law changing how the value of a property should be calculated when someone inherits it to more closely reflect the property’s current market rate, rather than what it might have been worth when it was originally bought.
Experts say that means people inheriting real estate will probably pay more tax, because the property will be valued around 20-30 percent higher than it would’ve been before the new law was passed.
Are there tax exemptions?
Yes.
Because of these exemptions, many inheritances in Germany don’t end up being taxed. When a spouse dies, their partner can inherit up to €500,000 tax-free, with only amounts above that being subject to tax. For children inheriting from their parents, that exemption is €400,000.
Around half of all inheritances in Germany are less than €33,000. The average inheritance comes in at around €80,000. Those are well below the exemption rates, so most people don’t have to worry about paying tax on them. In general, spouses and children who inherit a property that they then live in also won’t pay tax on that property if it’s less than 200 square metres and they live in it for 10 years.
These exemptions, however, were set in 2009 and property value in particular has risen a lot since then. A lot of German real estate is now priced above the exemption rates, meaning many people inheriting property in the future may end up paying a lot more tax than before.
READ ALSO: What experts say will happen to the German housing market in 2023
The liberal FDP are currently negotiating with the other government parties – the Greens and SPD – to raise these exemption rates, but it’s not clear yet what the final numbers will be.
What about real estate price differences around Germany?
That's one of the reasons the state of Bavaria is suing the federal government over the current inheritance tax law.
With some of the highest property prices in Germany, Bavarian premier Markus Söder is arguing that a blanket inheritance tax isn’t fair, because €400,000 goes a lot further in Saxony-Anhalt’s property market than it does in Bavaria’s – for example.
That’s why Bavaria’s state government asked the German Federal Constitutional Court to review the inheritance tax law in December, which Söder says should "open the way for an urgently needed increase in tax exemptions and inheritance tax on a regional basis".
Vocabulary
Inheritance – (die) Erbschaft
Inheritance Tax – (die) Erbschaftsteuer
Property or real estate – (die) Immobilien
Will – (das) Testament
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