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Save taxes through tax allowances

The amount of allowances you can utilise

If a property is transferred, whether by inheritance or gift, it must be taxed. However, there are allowances that reduce the tax burden, depending on the relationship between the heir and the deceased.
Inheritance and gift tax arise on the death of the testator or on receipt of the gift. A distinction is therefore made between an acquisition upon death and a lifetime gift. Acquisitions by reason of death include acquisitions by inheritance, legacy or compulsory portion, but also the special case of a gift that only comes into effect upon the death of the donor. Lifetime gifts include all gratuitous inter vivos gifts as well as compensation for a waiver of inheritance.

If at least one of the parties involved is a resident of Germany, within the meaning of the Inheritance and Gift Tax Act at the time the tax arises, the entire inheritance or gift is taxed. If there is no personal connection to Germany, only the bequeathed domestic assets are taxed. A German national within the meaning of the Inheritance and Gift Tax Act is someone who has a domicile or habitual residence in Germany or, as a German national, has not lived abroad for more than five years.
For the calculation of inheritance and gift tax, the heir or donee is categorised into the following tax classes according to their relationship to the testator or donor:

Tax class I

Spouse and life partner
(Step)children
(Step)grandchildren
Parents and grandparents in the case of acquisitions by reason of death

Tax class II

Parents and grandparents in the case of lifetime gifts
Siblings
Nieces and nephews
Step-parents
Children-in-law, parents-in-law
divorced spouses and former partners

Tax class III

All other purchasers

Tax allowances

Spouse: €500,000
(Step-)children/(step-)grandchildren of predeceased (step-)children: €400,000
(Step)grandchildren: €200,000
Parents + grandparents in the case of acquisitions by reason of death: €100,000
Persons in tax classes II and III Parents + grandparents in the case of lifetime gifts, siblings, nieces and nephews, step-parents, etc.: €20,000

Value of the taxable acquisition up to €75,000

Tax class I: 7%
Tax class II: 15%
Tax class III: 30%

Value of the taxable acquisition up to €300,000

Tax class I: 11%
Tax class II: 20%
Tax class III: 30%

Value of the taxable acquisition up to €600,000

Tax class I: 15%
Tax class II: 25%
Tax class III: 30%

Value of the taxable acquisition up to €6,000,000

Tax class I: 19%
Tax class II: 30%
Tax class III: 30%

Value of the taxable acquisition up to €13,000,000

Tax class I: 23%
Tax class II: 35%
Tax class III: 50%

Value of the taxable acquisition up to €26,000,000

Tax class I: 27%
Tax class II: 40%
Tax class III: 50%

Value of the taxable acquisition over €26,000,000

Tax class I: 30%
Tax class II: 43%
Tax class III: 50%

Annika Michelsen

Please get in touch if you have any questions on this topic or would like advice on other property matters. We look forward to hearing from you.

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20457 Hamburg, Germany

Tel: +49 40 361310