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Many Germans will inherit real estate in the coming years. Inheritance tax can be a challenge. However, with proper planning it can be avoided.
Almost half of German private households live in property. These people own the apartments and houses they live in. That also means: yours Kinder inherit the real estate one day. Millions of houses will change hands in the coming years. Inheritance can be simple or complicated, expensive or cheap. This guide shows that timely planning is helpful and that the state is surprisingly generous when it comes to inheritance tax in many cases.
How much the apartment or house is worth plays a role in calculating the tax that the tax office charges. © IMAGO/Frank Hoermann / SVEN SIMON
The value of the property:
How much the apartment or house is worth plays a role in calculating the tax that the tax office charges. The decisive factor is the market value at which the property could actually be sold. There are several methods to determine this, for example the comparative value method. You look at what similar properties in a similar location cost. Knowing the magnitude is important for testators and heirs to prepare for. The tax office ultimately determines the market value. If it appears to be too high, you have to submit an appraisal with a lower value.
Will between married couples:
A not uncommon case can look like this: The spouses live together in a condominium with 120 square meters of space in the city center. The assumed value here is around 700,000 euros. If the husband dies but the wife continues to live there for ten years or longer, she does not have to pay inheritance tax. This transition can be regulated in a will – for example with the so-called Berlin will: The spouses name each other as sole heirs, and the children only inherit when both have died. “In order to do this well, you should think about the future in good time,” advises Berlin lawyer Daniel Steltzer, a specialist in inheritance law. “And it’s helpful if they Parents Find a common solution with the children.”
If the widow dies:
If the second parent also dies, a shared daughter can also take over the apartment tax-free, provided she is the sole heir. Requirement: You move in there yourself within six months and use it as your main residence for at least ten years. “However, this rule only applies if the living space is a maximum of 200 square meters,” emphasizes Jörg Leine, tax expert at the consumer portal Finanztip. Extensive information on the subject can be found on its website, among other places.
When tax is due
However, if the only daughter lives somewhere else and rents out her parents’ apartment, she may have to pay inheritance tax in certain cases. In the present example, it is calculated as follows: As the testator’s biological child, she has an allowance of 400,000 euros, which is deducted from the market value of the property. She has to tax the remaining 300,000 euros at 11 percent, which amounts to an inheritance tax of 33,000 euros. Age can have a somewhat influence on the amount of tax. In principle, the allowances become smaller the more indirect the relationship between the deceased and the heirs. In some cases, grandchildren can only claim an allowance of 200,000 euros, great-grandchildren 100,000, siblings 20,000 euros. And the tax rates increase with the market value of the property. Financing this levy is not always easy. One variant is for the heiress to take out a loan and have a mortgage on the inherited property entered in the land register. She may then be able to service and repay the loan using the rental income.
What it looks like with two children:
If the deceased spouses have a daughter and a son, neither of whom want to live in the apartment, they could also inherit the property tax-free. Both the daughter and the son are entitled to their own allowance of 400,000 euros. They each exceed half of the inherited value. So the tax can be zero.
Several apartments:
If the parents were divorced, they probably lived separately in their own homes. Assuming that both apartments were worth 700,000 euros each and that the only daughter inherited first one and then the other, she could use her allowance of 400,000 euros twice. Because these are two different inheritance cases. In both cases, the taxable inheritance is reduced to 300,000 euros. This means that tax of 33,000 euros would be due twice. However, if the divorced parents leave behind two children, they can inherit both apartments together tax-free. Both are allowed to deduct their allowances twice each, meaning that the entire value of both properties is neutralized for tax purposes.
Common heritage:
In the last case described, the siblings then own the apartments together. If both have the same interests, things may be peaceful. However, if there is disagreement about how to deal with the real estate, conflicts cannot be ruled out. It is therefore worth considering finding a solution through a will in which, for example, the daughter takes over one apartment and the son completely takes over the other.
Inherit or give away:
There are also other generous regulations for heirs that save the tax that would otherwise have to be paid in another way. One variant is to donate the property during the parents’ lifetime, a type of early inheritance. For example, the couple can give their only daughter half of the 700,000 euro apartment. Tax is not due because the daughter’s allowance of 400,000 euros, which also applies in this case, covers this. After ten years, the act of donation can be repeated, which means that the second half of the property also changes hands tax-free thanks to the permitted use of the tax-free allowance again. This variant also has the advantage that the heiress does not need to use her parents’ apartment herself in order to achieve tax exemption. Using the same procedure, the daughter could also receive her divorced parents’ two apartments without having to pay any money to the tax office (two tax allowances).
Parents’ right of residence:
But the testators should also keep their own interests in mind, advises lawyer Steltzer. If you make a donation, you will want to be sure that you can continue to use your apartment. For this purpose, it seems advisable to have a lifelong right of residence entered in the land register.
