German Inheritance Tax Rates and Personal Tax Exempt Amounts

What is the German IHT Nil-Rate Band?

German inheritance law, including inheritance tax law, works very differently from the UK system (for German probate see here and here). While in the UK the estate as such is taxed (with one single nil-rate band of currently 325k GBP being available as tax relief) you find a completely different inheritance tax concept in Germany:

German tax authorities do not look at the estate but at the individual beneficiaries. Their respective personal gain is taxed (for details, what circumstances trigger German Inheritance Taxes see here).

Each beneficiary (heir, legatee or donee) is personally responsible for filing an inheritance tax declaration (Erbschafts-Steuererklärung) and for informing the authorities about the amount he/she has received (whether the money has actually been paid out already or not). Depending on the degree of blood relationship of the beneficiary to the legator the beneficiary has a personal tax exempt amount. These personal tax exempt amounts vary hugely: from 500,000 Euro for spouses and 400,000 per child, to only 20,000 Euros for people that are not closely related. Only the amount exceeding this tax exemption will be taxed at a rate which again depends on the personal relationship of the beneficiary to the legator, from 7% up to 50%. A detailed table of German inheritance tax rates and personal inheritance tax exemptions is available here: German Inheritance Tax Exemption and Tax Rates

German IHT inheritance tax gift tax chart

German IHT inheritance tax gift tax chart

Since the surviving spouse has a personal allowance (individual tax exempt amount) of 500,000 Euro and each child of 400,000 Euro there is, in most cases, no (or very little) German inheritance tax due when someone dies who leaves issue and/or spouse behind. If a German testator has, for example, a wife and two children he can pass on 1.3 million Euro without any inheritance tax being due. In practice the inheritance tax free amount is in most cases even higher, because property (houses or apartments)  is completely exempt from IHT (on top of the personal exempt amounts listed above) if the property is used as family residence. Finally, there are – somewhat complicated – tax privileges for businesses which allow shares to be transferred at less than real value if the business is being continued after the transfer for a certain grace period.

The full text of the German Inheritance and Gift Tax Act (Erbschafts- und Schenkungssteuergesetz) is available here.

For more information on German-British probate matters and international will preparation see the below posts by the international succession laws experts of Graf & Partners LLP

Or simply click on the “German Probate” section in the right column of this blog.

seminar_lyndalesIn case you need specific advice in a concrete case or assistance in German probate procedures, feel free to contact the lawyers of the German firm Graf & Partners which are specialized in British-German succession issues. Attorney Bernhard Schmeilzl has years of experience acting as executor and administrator of estates, both in the UK and in Germany. He is an expert in international succesion law and gives lectures and seminars for UK probate solicitors and UK accountants who advise clients with foreign assets.

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For more information on German law and the German legal system: the bilingual brochures “Law – Made in Germany” (free download here) as well as “Continental Law” (free download here). If you wish to look up specific German legislation you find central German statutes on the website of the German Department of Justice (here), including an English version of the Code of Civil Procedure. The German Civil Code (Bürgerliches Gesetzbuch) is available for download here: German_Civil_Code_in_English_language.

The law firms Graf & Partners (Germany) and Lyndales (UK) have many years of experience in civil and business law matters as well as litigation. So, should you need assistance with British-German legal issues do not hesitate to contact us by email at: schmeilzl [at] grafpartner.com