EXPLAINED: The rules around inheritance tax in Germany
Germany does have inheritance tax, but how much you have to pay depends on your relationship to the person who passed – and how much they left you.
If you’re a legal resident of Germany and someone leaves you money after they pass on, you are potentially subject to paying inheritance tax.
That’s generally the case whether or not you’re a German citizen and whether or not the person leaving you money or assets lived in Germany. It also applies to assets left to you that are outside Germany – for example if someone left you a house that’s located outside Germany.
But, as with many things in German law, it gets complicated after that. First off, a certain portion of the money left to you is exempt from tax.
How exemptions work in German inheritance tax
A flat amount of the money you’ve been left is exempt from inheritance tax. That means you get to keep everything up to and including that amount without paying anything. You only pay tax on amounts you get above that exemption level.
So how much is exempt?
That depends on your relationship to whoever passed on.
When a spouse dies, their partner can inherit up to €500,000 without paying any tax, with only amounts above that being taxable. So, for example, if a wife were to pass away and leave €600,000 to her German-resident husband, he would pay tax on €100,000 of that amount.
For children resident in Germany inheriting from their parents, that exemption is €400,000. This also is the case if the parent who passed on is a step-parent of the person inheriting.
German-based grandchildren get an exemption of €200,000.
If a parent or grandparent is inheriting from a child or grandchild who passed on, they receive a €100,000 exemption.
All other relationships to the person who passed on – whether nieces, nephews, in-laws, friends, or siblings – receive an exemption of €20,000.
In practice, these exemptions mean many people inheriting in Germany don’t have to pay any inheritance tax at all, since most get small amounts. The average inheritance in Germany is around €80,000. More than half involve amounts of less than €33,000.
There’s also some additional exemptions for property. In general, spouses and children who inherit a place that they then live in also won’t pay tax on that property. Typical conditions for that exemption are that the property is less than 200 square metres and the person inheriting lives in it for 10 years. This can though, depend on the specific situation.
Given that these exemption amounts were set in 2009, property prices in particular have risen since then.
Although a piece of property may put someone inheriting above their exemption, there are ways to avoid tax on it by living in the property. Photo by Philippe HUGUEN / AFP
That’s part of why the federal traffic light coalition is currently negotiating to raise these exemptions, but it’s not yet clear what the final numbers will be.
READ ALSO: Why inheritance tax is likely to rise in Germany in 2023
So how much do I have to pay?
Anything you have to pay above your exemption amount is calculated on a sliding scale.
But it also depends on what tax class you are.
For example, a single person in Germany’s Tax Class I will pay a seven percent rate of tax on the first €75,000 above their tax exemption, but an 11 percent rate of tax on the next €300,000 that comes after that. So, let’s say a single person inherited €500,000 from one of their parents. The first €400,000 would be tax-free, and then they pay seven percent on the next €75,000 and 11 percent on the remaining €25,000.
Tax calculators like Steuertipps.de can help with this, as people in different tax classes could end up paying different amounts. For example, someone in Germany’s Tax Class III might end up paying a 30 percent rate of tax on the first €75,000 above their exemption. That’s considerably higher than the seven percent a person in Tax Class I pays.
What if I have to pay tax in the other country? Do I also have to pay German inheritance tax?
This depends on whether Germany has a double taxation treaty with the other country, and there may be very specific laws and provisions for this case.
As with any tax or financial-related question, we recommend taking this one to a professional tax advisor in Germany who is familiar with international cases and inheritance tax law.
READ ALSO: Reader question: How can I find a German tax advisor?
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If you’re a legal resident of Germany and someone leaves you money after they pass on, you are potentially subject to paying inheritance tax.
That’s generally the case whether or not you’re a German citizen and whether or not the person leaving you money or assets lived in Germany. It also applies to assets left to you that are outside Germany – for example if someone left you a house that’s located outside Germany.
But, as with many things in German law, it gets complicated after that. First off, a certain portion of the money left to you is exempt from tax.
How exemptions work in German inheritance tax
A flat amount of the money you’ve been left is exempt from inheritance tax. That means you get to keep everything up to and including that amount without paying anything. You only pay tax on amounts you get above that exemption level.
So how much is exempt?
That depends on your relationship to whoever passed on.
When a spouse dies, their partner can inherit up to €500,000 without paying any tax, with only amounts above that being taxable. So, for example, if a wife were to pass away and leave €600,000 to her German-resident husband, he would pay tax on €100,000 of that amount.
For children resident in Germany inheriting from their parents, that exemption is €400,000. This also is the case if the parent who passed on is a step-parent of the person inheriting.
German-based grandchildren get an exemption of €200,000.
If a parent or grandparent is inheriting from a child or grandchild who passed on, they receive a €100,000 exemption.
All other relationships to the person who passed on – whether nieces, nephews, in-laws, friends, or siblings – receive an exemption of €20,000.
In practice, these exemptions mean many people inheriting in Germany don’t have to pay any inheritance tax at all, since most get small amounts. The average inheritance in Germany is around €80,000. More than half involve amounts of less than €33,000.
There’s also some additional exemptions for property. In general, spouses and children who inherit a place that they then live in also won’t pay tax on that property. Typical conditions for that exemption are that the property is less than 200 square metres and the person inheriting lives in it for 10 years. This can though, depend on the specific situation.
Given that these exemption amounts were set in 2009, property prices in particular have risen since then.
That’s part of why the federal traffic light coalition is currently negotiating to raise these exemptions, but it’s not yet clear what the final numbers will be.
READ ALSO: Why inheritance tax is likely to rise in Germany in 2023
So how much do I have to pay?
Anything you have to pay above your exemption amount is calculated on a sliding scale.
But it also depends on what tax class you are.
For example, a single person in Germany’s Tax Class I will pay a seven percent rate of tax on the first €75,000 above their tax exemption, but an 11 percent rate of tax on the next €300,000 that comes after that. So, let’s say a single person inherited €500,000 from one of their parents. The first €400,000 would be tax-free, and then they pay seven percent on the next €75,000 and 11 percent on the remaining €25,000.
Tax calculators like Steuertipps.de can help with this, as people in different tax classes could end up paying different amounts. For example, someone in Germany’s Tax Class III might end up paying a 30 percent rate of tax on the first €75,000 above their exemption. That’s considerably higher than the seven percent a person in Tax Class I pays.
What if I have to pay tax in the other country? Do I also have to pay German inheritance tax?
This depends on whether Germany has a double taxation treaty with the other country, and there may be very specific laws and provisions for this case.
As with any tax or financial-related question, we recommend taking this one to a professional tax advisor in Germany who is familiar with international cases and inheritance tax law.
READ ALSO: Reader question: How can I find a German tax advisor?
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