Be careful when it comes to inheritance!

Lack of information can be costly. A property heir who wanted to live in his deceased father's house learned this the hard way. In itself, not a problem, but he made a mistake: he waited too long to move in.

In the case heard in May 2019, a son inherited a two-family house as sole owner. His father had lived in the 120-square-meter house until his death in January 2014. After the transfer of ownership was registered in the land register in September 2015, the heir waited another seven months to have renovations carried out. It was only two and a half years after the inheritance that the son finally moved into the house. The tax office considered this far too late and demanded inheritance tax without taking into account the tax allowances customary for family homes.

In order for the tax allowances to apply, the following three conditions must generally be met: The property has a maximum living area of ​​200 square meters, the heir must have moved in within a maximum of six months, and: The house or apartment serves as his primary residence for at least ten years (if he moves out earlier, he must retroactively pay tax on the inheritance taxable part of the property).

But back to our case: The heir's lawsuit against the tax office was doomed to failure from the outset, because a tax exemption requires that the heir occupy the property themselves within six months. The judges criticized the plaintiff for failing to credibly demonstrate that he was not responsible for the delay in occupying the property. Therefore, the Federal Fiscal Court (BFH) ruled in favor of the tax office in its judgment of May 28 (Case No.: II R 37/16).

What are the tax-free allowances?

Due to high real estate prices, many surprised heirs of inherited property are now receiving tax assessments. This happens whenever the value of the inherited property exceeds the respective tax-free allowance. Spouses can inherit up to €500,000 tax-free, while children can inherit up to €400,000 (from each parent!). Grandparents can bequeath €200,000 to their grandchildren without incurring any tax. Generally, the tax-free allowance increases with the closeness of the family relationship. However, this rule does not apply to siblings: their allowance, as well as that for nieces, nephews, and life partners, is only €20,000.

If the value of the inheritance exceeds the applicable tax-free allowances, inheritance tax is levied on the difference. The amount cannot be stated as a general rule, because the Inheritance and Gift Tax Act (ErbStG) stipulates different tax rates for heirs, each assigned to a specific tax bracket.

For example: Erwin M. inherits a house in Stuttgart from his father, valued at €450,000. After deducting the tax-free allowance of €400,000, €50,000 remains. Inheritance tax of seven percent is levied on amounts up to €75,000. Erwin must therefore pay €3,500 to the tax office.

There are always exceptions to the rule: Depending on the degree of kinship, the type and value of the estate, it is possible to inherit without paying inheritance tax due to numerous tax-related details. Families should seek advice in good time, as inheritance tax can be avoided through a forward-looking will or inheritance contract, or even through lifetime gifts.

Sources: juris.bundesfinanzhof.de, immoverkauf24.de, Federal Ministry of Justice and Consumer Protection, ntv.de, lto.de, erbrechtsforum.de, focus.de, steuertipps.de