Do foreigners in Germany owe tax on money that is inherited from overseas?
If you received an inheritance worth at least €20,000 in 2023, there's a good chance that it will affect your taxes this year. However, in certain cases, some foreign assets may be exempt. Here's how German inheritance tax is applied to foreigners and foreign assets.
Inheritance tax (Erbschaftssteuer) has been collected in Germany since 1906, and it also applies to foreign residents.
This tax is levied on assets, like money or real estate, that are received from a deceased person.
Germany's current inheritance tax law has been in force since 1955, and is applied to the total value of all assets that are passed on, excluding diaries, clothing and furniture.
It also comes with relatively high allowances for close relatives such as spouses and children.
Does inheritance tax apply to foreign assets?
Long-term and permanent residents in Germany will likely be subject to the tax, even when the inheritance is coming from abroad.
Put simply, German inheritance tax is applied when either the deceased or the heir legally resides in Germany at the time that the inheritance is claimed.
Habitual residence is generally established when one has lived in Germany for six-months, but may be applied sooner in some cases. So the tax does apply to most long-term foreign residents regardless of their specific visa or residency status.
READ ALSO: I just got married in Germany. How does this affect my taxes?
Additionally, German nationals are still considered residents for up to five years after moving abroad.
So an American resident receiving an inheritance from their relative who lived in Germany, for example, may be taxed, and conversely a German resident receiving inheritance from their American relative would also be taxed.
In both of these cases, your inheritance is subject to 'unlimited tax liability' – meaning that the entire value of the inheritance is taxed.
If you and the deceased are both legally domiciled abroad, then you may still be subject to 'limited tax liability' – meaning that tax is only owed for parts of the inheritance that are located in Germany, such as property or a savings account held in a German bank.
Other exemptions are sometimes possible, but this can depend on the other country involved and what the asset involved is. For example, if a family member based abroad leaves you mutual funds in a non-German bank account that you choose not to cash out - but continue to hold - this may be exempt from inheritance tax in certain cases.
Property left to you by a family member may also be exempt from inheritance tax if you or a family member live in the property in question for at least ten years after you inherit it.
If you are in specific situations like this, you may wish to consult a lawyer or tax advisor specialised in inheritance matters.
How much inheritance can you receive before it's taxed?
The amount of tax owed depends on the value of the inheritance and also on one's relation to the deceased.
Inheritances are also granted significant allowances in Germany. Allowances refer to the amount of money you can receive without having to pay any tax.
Spouses and registered partners, for example, pay no tax on the first €500,000 worth of inherited assets. Children, step-children and grandchildren whose parents have already passed away are granted a €400,000 allowance, whereas grandchildren with living parents get a €200,000 allowance. Great-grandchildren, parents and grandparents get a €100,000 allowance. All other relatives or unrelated heirs receive a €20,000 allowance.
Regardless of allowances, all inheritances worth €20,000 or more need to be declared.
Additional allowances apply to specific situations, such as a special pension allowance for spouses or children who don't receive widow or orphan pensions. These currently amount to €256,000 for spouses and civil partners, and between €10,300 and €52,000 for children, depending on their age.
Immediate family who cared for the deceased before death can apply for up to €20,000 in care allowance.
Additionally, there is a lump sum allowance of €10,300 for "estate liabilities", such as funeral costs, gravestone, and grave maintenance fees.
Will I be doubled taxed by Germany and my home country?
Germany has Double Taxation Agreements that cover inheritance and estate taxes with the USA, Greece, France, Sweden, Denmark and Switzerland.
In some cases these agreements can override German domestic law, and will likely affect how much tax you owe.
Generally these agreements allow tax payers to avoid double taxation by offsetting the foreign tax against the German tax or vice versa. For example, if you have already paid an inheritance tax on assets coming from the USA, then the amount you paid in US taxes may be taken off the amount that would be owed in Germany.
In this case it would be advisable to seek consultation from a tax professional who is familiar with German tax law and the Double Taxation Agreements Germany has with your country.
How much tax will you owe?
If you received an inheritance that exceeds your allowance level, calculating the amount you owe can be a bit complicated.
READ ALSO: Should you get a tax advisor in Germany - and how much does it cost?
There are three inheritance tax brackets, which are based on your relation to the deceased and have no relation to the tax brackets for income tax.
Immediate family of the deceased, such as spouses, children or grandchildren are included in tax class I, and can generally expect to be taxed at a rate between seven to 11 percent. Non-related heirs are included in tax class III and can expect to pay a 30 percent tax on inheritances up to €13 million, or 50 percent for inheritances above that.
For more information on Germany's inheritance taxes, we have a guide to the topic.
You can also use tax calculators like this one by Steuertipps.de, or this one by Steuerklassen.com to get an idea about how much tax you may owe.
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Inheritance tax (Erbschaftssteuer) has been collected in Germany since 1906, and it also applies to foreign residents.
This tax is levied on assets, like money or real estate, that are received from a deceased person.
Germany's current inheritance tax law has been in force since 1955, and is applied to the total value of all assets that are passed on, excluding diaries, clothing and furniture.
It also comes with relatively high allowances for close relatives such as spouses and children.
Does inheritance tax apply to foreign assets?
Long-term and permanent residents in Germany will likely be subject to the tax, even when the inheritance is coming from abroad.
Put simply, German inheritance tax is applied when either the deceased or the heir legally resides in Germany at the time that the inheritance is claimed.
Habitual residence is generally established when one has lived in Germany for six-months, but may be applied sooner in some cases. So the tax does apply to most long-term foreign residents regardless of their specific visa or residency status.
READ ALSO: I just got married in Germany. How does this affect my taxes?
Additionally, German nationals are still considered residents for up to five years after moving abroad.
So an American resident receiving an inheritance from their relative who lived in Germany, for example, may be taxed, and conversely a German resident receiving inheritance from their American relative would also be taxed.
In both of these cases, your inheritance is subject to 'unlimited tax liability' – meaning that the entire value of the inheritance is taxed.
If you and the deceased are both legally domiciled abroad, then you may still be subject to 'limited tax liability' – meaning that tax is only owed for parts of the inheritance that are located in Germany, such as property or a savings account held in a German bank.
Other exemptions are sometimes possible, but this can depend on the other country involved and what the asset involved is. For example, if a family member based abroad leaves you mutual funds in a non-German bank account that you choose not to cash out - but continue to hold - this may be exempt from inheritance tax in certain cases.
Property left to you by a family member may also be exempt from inheritance tax if you or a family member live in the property in question for at least ten years after you inherit it.
If you are in specific situations like this, you may wish to consult a lawyer or tax advisor specialised in inheritance matters.
How much inheritance can you receive before it's taxed?
The amount of tax owed depends on the value of the inheritance and also on one's relation to the deceased.
Inheritances are also granted significant allowances in Germany. Allowances refer to the amount of money you can receive without having to pay any tax.
Spouses and registered partners, for example, pay no tax on the first €500,000 worth of inherited assets. Children, step-children and grandchildren whose parents have already passed away are granted a €400,000 allowance, whereas grandchildren with living parents get a €200,000 allowance. Great-grandchildren, parents and grandparents get a €100,000 allowance. All other relatives or unrelated heirs receive a €20,000 allowance.
Regardless of allowances, all inheritances worth €20,000 or more need to be declared.
Additional allowances apply to specific situations, such as a special pension allowance for spouses or children who don't receive widow or orphan pensions. These currently amount to €256,000 for spouses and civil partners, and between €10,300 and €52,000 for children, depending on their age.
Immediate family who cared for the deceased before death can apply for up to €20,000 in care allowance.
Additionally, there is a lump sum allowance of €10,300 for "estate liabilities", such as funeral costs, gravestone, and grave maintenance fees.
Will I be doubled taxed by Germany and my home country?
Germany has Double Taxation Agreements that cover inheritance and estate taxes with the USA, Greece, France, Sweden, Denmark and Switzerland.
In some cases these agreements can override German domestic law, and will likely affect how much tax you owe.
Generally these agreements allow tax payers to avoid double taxation by offsetting the foreign tax against the German tax or vice versa. For example, if you have already paid an inheritance tax on assets coming from the USA, then the amount you paid in US taxes may be taken off the amount that would be owed in Germany.
In this case it would be advisable to seek consultation from a tax professional who is familiar with German tax law and the Double Taxation Agreements Germany has with your country.
How much tax will you owe?
If you received an inheritance that exceeds your allowance level, calculating the amount you owe can be a bit complicated.
READ ALSO: Should you get a tax advisor in Germany - and how much does it cost?
There are three inheritance tax brackets, which are based on your relation to the deceased and have no relation to the tax brackets for income tax.
Immediate family of the deceased, such as spouses, children or grandchildren are included in tax class I, and can generally expect to be taxed at a rate between seven to 11 percent. Non-related heirs are included in tax class III and can expect to pay a 30 percent tax on inheritances up to €13 million, or 50 percent for inheritances above that.
For more information on Germany's inheritance taxes, we have a guide to the topic.
You can also use tax calculators like this one by Steuertipps.de, or this one by Steuerklassen.com to get an idea about how much tax you may owe.
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