Hello,
I would send that dubious financial advisor to the middle of nowhere very quickly if I were you! Extremely unprofessional
My mother’s property, where half of it has her house on it, is supposed to be divided.
On the other half (so far just garden) I want to build a detached house with my family.
My mother wants to gift us half.
Is there any real estate transfer tax payable here? A financier had hinted that no tax would be due for me, but for my wife?!
But there would be a trick to avoid this?! He didn’t reveal the trick to me because he would only do so after I pay his commission (for the construction financing, etc.).
Is that correct about the real estate transfer tax? If yes, is there really a "trick" to avoid it?
1. Preliminary remark
According to the decision of the Federal Constitutional Court published on January 31, 2007 (BVerfG, November 7, 2006 – 1 BvL 10/02), the previous version of § 19 of the Inheritance Tax Act was not compatible with the Basic Law. According to the Federal Constitutional Court, the inheritance tax law in its former form was not compatible with the general equality rule of Art. 3 Para. 1 GG, because a uniform tax rate was applied to differently valued economic units or assets (business assets, real property, shares in corporations, and agricultural and forestry businesses), see also keyword inheritance tax – unconstitutionality. The law for the reform of inheritance tax and valuation law came into force on January 1, 2009.
2. Transfers of assets (§§ 3, 7 Inheritance Tax Act)
According to § 1 Inheritance Tax Act, inheritance tax (and gift tax for asset transfers inter vivos) mainly applies to the following asset transfers:
2.1 Acquisition by death (§ 3 Inheritance Tax Act)
Acquisitions by death include, among others:
[*]Inheritance by law, will, or inheritance contract
[*]Legacies
[*]Gifts in contemplation of death
[*]Asset advantages based on contracts concluded by the deceased (e.g., life insurance)
[*]Compulsory portion claims
[*]Compensations for waiver of compulsory portion or substitution inheritance claims or legacies
[*]Transfer of a partnership share (partnership, corporation) upon withdrawal of a partner against compensation (of heirs) below the value of the share
[*]Transfer of assets (of the deceased) to a foundation or trust
See also will, joint will (Berliner Testament), inheritance, family law on inheritance, spousal inheritance.
2.2 Gifts inter vivos (§ 7 Inheritance Tax Act)
Gifts inter vivos include, among others:
[*]Any generous transfer among living persons leading to enrichment
[*]Enrichment of spouses or life partners through the community of property regime (“Gütergemeinschaft”)
[*]Compensations for renunciation of inheritance
[*]Acquisition due to a condition imposed by the donor
[*]Transfer of assets to a foundation inter vivos based on a foundation deed
Note:
The Federal Fiscal Court (BFH) commented on the limited requirements for the definiteness of a gift tax assessment notice without taxpayer cooperation in its ruling of June 6, 2007 – II R 17/06.
If the tax office lacks the information to separately assess the tax for individual gifts because the taxpayer violated his cooperation duties under § 90 AO, particularly tax declaration obligations under § 149 Para. 1 AO, the tax office may set the tax uniformly using an estimated amount covering all gifts made within an estimated period and unknown quantity and amount.
Practical tip:
Consideration that the donee must provide for the gift reduces the gift value, unless they cannot be quantified, e.g., intangible considerations.
The so-called taxable acquisition is subject to inheritance tax. The taxable acquisition results from the gross assets falling to the acquirer minus all debts and charges related to the inheritance.
Note:
According to the BFH ruling of October 17, 2007 – II R 53/05, it counts as a gift if one spouse receives a sum of money at the beginning of marriage from the other spouse as compensation for a contractually agreed partial waiver of post-marital maintenance. This partial waiver does not constitute consideration reducing the enrichment.
3. Value of the estate
Unless tax exemptions (§§ 3, 13, 13a, 13c Inheritance Tax Act) or allowances (§§ 16-18 Inheritance Tax Act) apply, the gross assets must be determined according to the Valuation Act. Specifically, for estate valuation in § 12 Inheritance Tax Act (which partly refers to the Valuation Act), the following valuation bases apply:
[TR="bgcolor: #FAFAFA"]
[TH]Type of inherited assets[/TH]
[TH]Valuation basis for inheritance tax[/TH]
[TR="bgcolor: #FAFAFA"]
- Capital claims (e.g., savings, fixed deposits, loans, etc.) |
Nominal amount in EUR; foreign currencies must be converted accordingly; accrued but not yet credited interest is added, § 12 BewG |
[TR="bgcolor: #FAFAFA"]
- Stocks and other securities listed on the stock exchange |
Lowest stock market price on the day of inheritance (date of death) § 11 Para. 1 BewG
->Inheritance tax – securities |
[TR="bgcolor: #FAFAFA"]
- GmbH shares and other unlisted securities and shares |
Valued at fair market value. Fair market value derived from unrelated third-party sales within less than one year or, if not possible, determined considering earning prospects of the corporation or another recognized method commonly used in ordinary business transactions for non-tax purposes.
->Inheritance tax reform – valuation of business assets |
[TR="bgcolor: #FAFAFA"]
- Real property (plots, buildings, hereditary building rights), partly business property |
Real estate value according to §§ 157, 151, 159, 176-198 BewG (§ 12 Para. 3 Inheritance Tax Act) |
[TR="bgcolor: #FAFAFA"]
- Agricultural and forestry assets including real estate |
Agricultural and forestry real property value according to § 157 Para. 2 in conjunction with §§ 158-175 BewG. This value also includes other assets serving the agricultural and forestry operation. |
[TR="bgcolor: #FAFAFA"]
- Usufruct |
Capitalized value of the annual usufruct use (§§ 13-15 BewG) |
[TR="bgcolor: #FAFAFA"]
- Business assets (sole proprietorships and freelance assets) |
Fair market value of the business assets at the time of transfer §§ 95 ff. BewG (fictitious determination), business real estate partly valued as real estate according to §§ 157, 151, 159, 176-198 BewG. ->Inheritance tax reform – valuation of business assets |
[TR="bgcolor: #FAFAFA"]
- Shares in partnerships (limited partnerships, general partnerships) |
Fair market value of a share in the business assets at the time of transfer (§ 97 BewG). If it does not concern a commercially active partnership (e.g., real estate GbR), the assets belonging to the partnership are to be valued individually (§ 10 Para. 1 Sentence 4 Inheritance Tax Act). ->Share valuation |
[TR="bgcolor: #FAFAFA"]
- Corporations |
See stocks and unlisted shares |
[TR="bgcolor: #FAFAFA"]
- Other assets (collections, paintings, coins, jewelry, cars, precious metals, gemstones, etc.) |
Market value (or estimate)
Attention! Various allowances apply when valuing other assets. |
If the inheritance tax is not borne by the heir but the deceased has assigned the payment to another person, the inheritance tax thus saved for the heir also belongs to the taxable estate. The same applies if for a gift, the donee does not bear the tax, but the donor assumes its payment (§ 10 Para. 2 Inheritance Tax Act).
The so-calculated gross assets are initially reduced by the so-called
estate liabilities (§ 10 Para. 5-10 Inheritance Tax Act).
Estate liabilities include, for example:
[*]1. All debts of the deceased that the heir must assume, as far as they do not relate to a commercial enterprise (in that case, already included in valuation of business assets);
[*]2. Liabilities from legacies and conditions;
[*]3. Asserted compulsory portion and substitution inheritance claims of other heirs;
[*]4. Funeral costs including gravestone and customary regional funeral or burial services;
[*]5. Grave maintenance costs multiplied by usual annual costs x 9.3;
[*]6. Costs related to acquiring the estate and estate settlement.
Instead of the individually proven amounts under 4–6, a flat rate of EUR 10,300 may be applied.
Note:
According to BFH ruling of June 20, 2007 – II R 29/06, costs incurred by the heir for litigation concerning his own inheritance tax liability are not deductible under § 10 Para. 5 No. 3 Inheritance Tax Act. This also applies to costs for representation in objection or lawsuit proceedings of a legacy beneficiary to which the heir was involved or joined.
Note:
If spouses appoint their children as final heirs via a joint will (Berliner Testament), and the children agree with the surviving spouse to waive compulsory portions after the first deceased spouse against payment of a compensation which becomes due only at the death of the surviving spouse, then according to BFH ruling of June 27, 2007 – II R 30/05, the children may not deduct such compensation obligations as estate liabilities under § 10 Para. 5 No. 1 Inheritance Tax Act upon the death of the surviving spouse. According to BFH, such compensation obligations do not constitute an economic burden for the surviving spouse.
4. Tax exemptions
Among others, the following are tax-exempt:
[*]the equalization of accrued gains (§ 5 Inheritance Tax Act) for spouses or life partners under the statutory property regime (community of accrued gains). This must always be determined precisely. A flat-rate of 25% of the estate is not permissible.
Inheritance tax – accrued gains equalization, accrued gains equalization – civil law
[*]under certain conditions, business assets: For regulations on tax exemption for business assets, agricultural and forestry enterprises, and shares in corporations under § 13a Inheritance Tax Act in the version of the Inheritance Tax Reform Act, see keyword "Inheritance tax reform – tax exemption business assets".
[*]Household goods, laundry, clothing ( § 13 Para. 1 No. 1 Inheritance Tax Act )
With heirs by tax classes (these are tax classes according to § 15 Inheritance Tax Act – see below –, not payroll tax classes):
Note:
Exemptions do not apply to business assets, money, securities, coins, precious metals, precious stones, and pearls.
[*]EUR 41,000 for recipients in tax class I (spouse, children, grandchildren; for parents and grandparents only if acquired by death) and for acquisition by life partners;
[*]a further EUR 12,000 for recipients in tax class I and life partners for other movable items not household goods or clothing;
[*]a total of EUR 12,000 for persons in tax classes II and III for movable items including household goods and clothing;
[*]Real estate, art objects, scientific collections, libraries, and archives ( § 13 Para. 1 No. 2 Inheritance Tax Act ),
[*]1. whose preservation is of particular importance for art, history, and science in the public interest, where costs exceed income and which appropriately serve science and public education: tax-exempt at 60% or 85% (for real estate or parts of it) of their value.
[*]2. with family ownership exceeding 20 years or listing in a special registry to protect German cultural assets against emigration: tax-exempt 100% of their value
[*]3. if they are assigned to monument preservation by the heir: tax-exempt 100% of their value
[*]Movable tangible assets ( § 13 Para. 1 No. 1 Inheritance Tax Act )
e.g., cars, boats, art objects, collections, etc., (excluding cash, securities, coins, precious metals, gemstones, and pearls) for heirs by tax classes (see below)
Tax class I: up to EUR 12,000; tax classes II and III: together with household goods, laundry, clothing up to EUR 12,000
[*]Family home ( § 13 Para. 1 No. 4a Inheritance Tax Act )
If a spouse or life partner gifts the other a self-used house or flat (family home) or a share thereof, the gift is tax-exempt. The same applies when loans taken out for the family home are repaid or if the spouse or life partner bears subsequent expenses (see also keyword "Inheritance tax reform – tax rates / allowances").
The same applies under § 13 Para. 1 No. 4b Inheritance Tax Act for acquisition of a family home by a spouse or life partner upon death and under § 13 Para. 1 No. 4c Inheritance Tax Act under certain conditions for acquisition of a family home by children within tax class I No. 2.
[*]Debt forgiveness ( § 13 Para. 1 No. 5 Inheritance Tax Act )
that arose from providing means for maintenance or education. Also, granting reasonable means for maintenance or education is tax-exempt. If the deceased or donor transfers other assets besides debt forgiveness to the debtor, the exemption ceases if the tax can be paid from half of the assets transferred besides the debt forgiveness.
Debt forgiveness of other debts is tax-exempt if the debts are forgiven due to the debtor’s hardship and the hardship is not ended by the forgiveness.
[*]When parents, adoptive parents, stepparents, or grandparents are benefitted who themselves are incapable of earning due to disability or live in a shared household with such a person and therefore cannot work themselves: up to EUR 41,000 (§ 13 Para. 1 No. 6 Inheritance Tax Act)
[*]Claims under certain compensation laws ( § 13 Para. 1 Nos. 7, 8 Inheritance Tax Act ),
e.g., Equalization of Burdens Act, Refugee Assistance Act, Prisoners’ Assistance Act, Rehabilitation Act, War Consequences Act, Federal Expellees Act
[*]Donations to persons who provided unpaid or reduced-cost care or maintenance up to EUR 20,000 (§ 13 Para. 1 No. 9 Inheritance Tax Act)
[*]Donations to religious communities (§ 13 Para. 1 No. 16 Inheritance Tax Act)
[*]Donations whose use is assured for church, charitable, or benevolent purposes (§ 13 Para. 1 No. 17 Inheritance Tax Act).
5. Tax classes / allowances
The amount of inheritance tax and personal allowances depend among other things on tax classes. § 15 Inheritance Tax Act provides division into three tax classes I to III.
Besides objective tax exemptions (see above), § 16 Inheritance Tax Act regulates additional personal allowances differentiated by tax class ranging between EUR 500,000 and 20,000.
In addition, spouses, life partners, and children acquiring by death benefit from a special supplementary allowance (§ 17 Inheritance Tax Act). This allowance generally amounts to EUR 256,000 for spouses and life partners but is reduced by the capital value of pensions or similar benefits not belonging to the estate. For children up to 27 years, the allowance is scaled by age from EUR 52,000 (up to 5 years) down to EUR 10,300 (between 20 and 27 years). Also here a possible reduction takes place for surviving spouses by the capital value of pensions (e.g., orphan’s benefits).
Example:
Max Redlich dies and leaves his 18-year-old daughter liquid assets of EUR 500,000.
Solution:
[TR="bgcolor: #FAFAFA"]
taxable acquisition |
[TD="align: right"]EUR 79,500
[TR="bgcolor: #FAFAFA"]
Acquisition by death amounts to |
[TD="align: right"]EUR 500,000
less personal allowance |
[TD="align: right"]EUR 400,000
[TR="bgcolor: #FAFAFA"]
|
[TD="align: right"]-----------
taxable acquisition before supplementary allowance |
[TD="align: right"]EUR 100,000
[TR="bgcolor: #FAFAFA"]
- supplementary allowance |
[TD="align: right"]EUR 20,500
|
[TD="align: right"]-----------
[TR="bgcolor: #FAFAFA"]
|
|
[TD="colspan: 3"]Overview of tax classes and allowances
|
|
|
[TD="colspan: 2"]
[TR="bgcolor: #FAFAFA"]
[TH]Tax class, § 15 I Inheritance Tax Act[/TH]
[TH]Norm Inheritance Tax Act[/TH]
[TH]Persons belonging to tax class[/TH]
[TH]Personal allowance EUR[/TH]
[TH]Supplementary allowance EUR[/TH]
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class I No. 1 |
§ 16 I No. 1 |
Spouse |
500,000 |
256,000 |
§ 15 I Tax class I No. 2 |
§ 16 I No. 2 |
Children and stepchildren |
400,000 |
|
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class I No. 2 |
§ 16 I No. 2 |
Children and stepchildren aged 0 to 5 years |
400,000 |
52,000 |
§ 15 I Tax class I No. 2 |
§ 16 I No. 2 |
Children and stepchildren aged 5 to 10 years |
400,000 |
41,000 |
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class I No. 2 |
§ 16 I No. 2 |
Children and stepchildren aged 10 to 15 years |
400,000 |
30,700 |
§ 15 I Tax class I No. 2 |
§ 16 I No. 2 |
Children and stepchildren aged 15 to 20 years |
400,000 |
20,500 |
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class I No. 2 |
§ 16 I No. 2 |
Children and stepchildren aged 20 to 27 years |
400,000 |
10,300 |
§ 15 I Tax class I No. 3 |
§ 16 I No. 3 |
Descendants of children and stepchildren within tax class I No. 2 |
200,000 |
------ |
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class I No. 4 |
§ 16 I No. 4 |
Parents and grandparents for acquisition by death |
100,000 |
------ |
|
|
|
|
|
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class II No. 1 - 3 |
§ 16 I No. 5 |
Parents, grandparents (for gifts), siblings, descendants of siblings at first degree |
20,000 |
|
§ 15 I Tax class II No. 4 - 7 |
§ 16 I No. 5 |
Stepparents, children-in-law, parents-in-law, divorced spouse |
20,000 |
------ |
[TR="bgcolor: #FAFAFA"]
§ 15 I Tax class III |
§ 16 I No. 7 |
All other recipients and purpose donations |
20,000 |
------ |
[TD="align: left"]§ 15 I Tax class III
[TD="align: left"]§ 16 I No. 6
[TD="align: left"]Life partner
[TD="align: Center"]500,000
[TD="align: Center"]256,000
Allowances are renewed after 10 years since the last acquisition from the same person (see § 14 Inheritance Tax Act). For a new acquisition within the 10-year period, all acquisitions are aggregated to determine allowances and tax rate. For a new acquisition from the same person, the inheritance tax for the later acquisition is the tax on the total acquisitions in the last 10 years minus taxes already paid.
Example:
Note: Amounts from 1995 are fictitiously converted to EUR
Example for inheritance tax law (before application of the Inheritance Tax Reform Act
):
A father gifts his daughter EUR 125,000 in 1995.
In 2002 he dies and leaves her EUR 250,000.
Solution:
[TR="bgcolor: #FAFAFA"]
Inheritance tax payable on gift and inheritance |
EUR 14,356 |
[TR="bgcolor: #FAFAFA"]
Gift 1995: |
|
Acquisition amounts to |
EUR 125,000 |
[TR="bgcolor: #FAFAFA"]
less allowance 1995 |
EUR 46,016 |
|
----------- |
[TR="bgcolor: #FAFAFA"]
Taxable acquisition |
EUR 78,984 |
Tax rate in tax class I = 5.5 % |
EUR 4,344 |
[TR="bgcolor: #FAFAFA"]
|
|
Inheritance 2002: |
|
[TR="bgcolor: #FAFAFA"]
Acquisition by death |
EUR 250,000 |
plus gifts within 10 years |
EUR 125,000 |
[TR="bgcolor: #FAFAFA"]
|
----------- |
Total acquisition 2002 |
EUR 375,000 |
[TR="bgcolor: #FAFAFA"]
less allowance 2002 |
EUR 205,000 |
|
----------- |
[TR="bgcolor: #FAFAFA"]
Taxable acquisition |
EUR 170,000 |
|
|
[TR="bgcolor: #FAFAFA"]
Tax in tax class I = 11 % |
EUR 18,700 |
less creditable tax |
EUR 4,344 |
[TR="bgcolor: #FAFAFA"]
|
----------- |
Note:
The Federal Constitutional Court declared the
discrimination against homosexual couples compared to spouses by the inheritance and gift tax law regarding
personal allowances,
tax rates, and the
non-consideration of the supplementary allowance as
unconstitutional (BVerfG, July 21, 2010, 1 BvR 611/07, 1 BvR 2464/07). The Court gave the legislator until the end of 2010 to find a constitutional regulation for
old cases between 2001 and 2008, which the constitutional complaint referred to.
6. Inheritance tax rates
Depending on the amount of taxable acquisition and tax class, inheritance tax is levied at rates between 7% and 50% (§ 19 Inheritance Tax Act).
[TR="bgcolor: #FAFAFA"]
[TD="colspan: 4"]Overview of tax rates considering EUR values
|
|
|
|
[TR="bgcolor: #FAFAFA"]
[TH]Value of taxable acquisition up to and including (after deduction of allowances):[/TH]
[TH colspan="3"]Percentage in tax class[/TH]
|
[TH]I[/TH]
[TH]II
new from 01.01.2010
Values in brackets for 2009[/TH]
[TH]III[/TH]
[TR="bgcolor: #FAFAFA"]
[TH]EUR[/TH]
[TH]%[/TH]
[TH]%[/TH]
[TH]%[/TH]
[TR="bgcolor: #FAFAFA"]
75,000 |
7 |
15 (30) |
30 |
[TR="bgcolor: #FAFAFA"]
300,000 |
11 |
20 (30) |
30 |
[TR="bgcolor: #FAFAFA"]
600,000 |
15 |
25 (30) |
30 |
[TR="bgcolor: #FAFAFA"]
6,000,000 |
19 |
30 (30) |
30 |
[TR="bgcolor: #FAFAFA"]
13,000,000 |
23 |
35 (50) |
50 |
[TR="bgcolor: #FAFAFA"]
26,000,000 |
27 |
40 (50) |
50 |
[TR="bgcolor: #FAFAFA"]
over 26,000,000 |
30 |
43 (50) |
50 |
§ 19 Para. 3 Inheritance Tax Act contains a hardship relief rule that in certain cases partially mitigates higher taxation due to exceeding value limits. For example, a taxable acquisition of EUR 75,050 in tax class I results in applying a tax rate of 11% instead of 7% (which would apply at EUR 75,000).
Note:
The Ministry of Finance Baden-Württemberg issued a directive on January 18, 2010 (3-3825/2) presenting the relevant threshold values for acquisitions with tax origin after December 31, 2008, and after December 31, 2009 in tabular form.
Note:
The Federal Constitutional Court declared the
discrimination against homosexual couples compared to spouses by the inheritance and gift tax law regarding
personal allowances,
tax rates, and the
non-consideration of the supplementary allowance as
unconstitutional (BVerfG, July 21, 2010, 1 BvR 611/07, 1 BvR 2464/07). The Court instructed the legislator to find a constitutional regulation for
old cases between 2001 and 2008 by end of 2010 that formed the subject of the constitutional complaint.
7. Prior acquisitions (§ 14 Inheritance Tax Act)
Practical tip:
Anyone wishing to transfer substantial assets, e.g., to their children, should plan long-term. By utilizing the 10-year period, considerable inheritance tax amounts can be saved. If assets are already transferred inter vivos to children by gifts, the full allowances are usable again every 10 years.
Note:
Pay attention to the regulation of § 14 Para. 1 Sentence 4 Inheritance Tax Act. According to this, the tax amount calculated for the last acquisition without aggregation with previous acquisitions must not be undercut by subtracting the tax according to § 14 Para. 1 Sentences 2 or 3 Inheritance Tax Act.
Example:
Herbert Steinalt dies and leaves his 48-year-old son
[TR="bgcolor: #FAFAFA"]
|
Tax savings case b compared to case a: |
EUR 16,500 |
[TR="bgcolor: #FAFAFA"]
Alternative a): |
[TD colspan="2"]cash assets of EUR 550,000
Alternative b): |
[TD colspan="2"]cash assets of EUR 150,000, but had given his son EUR 100,000 every 10 years since the son turned 17, last when the son was 47
[TR="bgcolor: #FAFAFA"]
|
[TD colspan="2"]
|
Solution |
|
[TR="bgcolor: #FAFAFA"]
|
|
|
a)
| Acquisition by death
| EUR 550,000
|
[TR="bgcolor: #FAFAFA"]
|
less personal allowance
| EUR 400,000
|
|
|
--------------
|
[TR="bgcolor: #FAFAFA"]
|
Taxable acquisition
| EUR 150,000
|
|
Inheritance tax at a rate of 11% (tax class I)
| EUR 16,500
|
[TR="bgcolor: #FAFAFA"]
|
|
|
b)
| |
|
[TR="bgcolor: #FAFAFA"]
|
Gifts 4 x EUR 100,000
| EUR 400,000
|
|
less allowances 4 x EUR 400,000
| |
[TR="bgcolor: #FAFAFA"]
|
(Acquisitions each after 10 years)
| EUR 1,600,000
|
|
|
--------------
|
[TR="bgcolor: #FAFAFA"]
|
Taxable gifts
| EUR 0
|
|
Acquisition by death
| EUR 150,000
|
[TR="bgcolor: #FAFAFA"]
|
Addition (only the gift at age 47 counts, since less than 10 years have passed)
| EUR 100,000
|
|
|
-------------
|
[TR="bgcolor: #FAFAFA"]
|
Acquisition
| EUR 250,000
|
|
less allowances
| EUR 400,000
|
[TR="bgcolor: #FAFAFA"]
|
|
-------------
|
|
Taxable acquisition
| EUR 0
|
[TR="bgcolor: #FAFAFA"]
|
Inheritance tax at a rate of 7% (tax class I)
| EUR 0
|
|
|
|
Allowances apply separately to acquisitions from one donor or testator. If spouses are co-owners of assets (e.g., joint bank balances, real estate), allowances for gifts to children double.
Example:
Mr. and Mrs. Wohlgemut are co-owners of a securities account with equal shares. The value is EUR 900,000. They gift this account to their 32-year-old son Franz.
[TR="bgcolor: #FAFAFA"]
[TH]Solution[/TH]
[TH colspan="2"]Acquisition from[/TH]
|
[TH]Mother[/TH]
[TH]Father[/TH]
[TR="bgcolor: #FAFAFA"]
Value of gift |
EUR 450,000
| EUR 450,000
|
less personal allowance
| EUR 400,000
| EUR 400,000
|
[TR="bgcolor: #FAFAFA"]
|
-----------
| -----------
|
Taxable acquisition
| EUR 50,000
| EUR 50,000
|
[TR="bgcolor: #FAFAFA"]
Inheritance tax each 7 %
| EUR 3,500
| EUR 3,500
|
If the father had been sole owner of the account, the following situation would arise:
[TR="bgcolor: #FAFAFA"]
Value of gift |
EUR 900,000
|
less allowance
| EUR 400,000
|
[TR="bgcolor: #FAFAFA"]
|
--------------
|
Taxable acquisition
| EUR 500,000
|
[TR="bgcolor: #FAFAFA"]
Inheritance tax 15 %
| EUR 75,000
|
When gifting jointly owned property, the tax saving here is EUR 68,000.
Note:
The Ministry of Finance Schleswig-Holstein issued a directive on June 12, 2008 – VI 353 – S 3820 – 009 regarding the fictitious withholding tax according to § 14 Para. 1 Sentence 2 Inheritance Tax Act in agreement with the supreme financial authorities of other states.
The BFH ruled on March 2, 2005 – II R 43/03 that in a chain of gifts, the tax on the last acquisition should be calculated so that the allowance actually has effect at the time of that acquisition, insofar as it has not been consumed within the 10-year period.
After an increase of allowances, the highest state tax authorities consider that an amount up to the difference between the new and old allowance can be gifted tax-free. This shall also apply if the allowance was already consumed at the prior acquisition taxation during the 10-year period of § 14 Inheritance Tax Act and if this grant reaches or exceeds the new allowance amount.
8. Multiple acquisitions (§ 27 Inheritance Tax Act)
If the same assets are inherited multiple times in succession, e.g., after the father’s death first to the spouse and after their death to the children, inheritance tax is payable each time anew. To mitigate this cumulative effect, § 27 Inheritance Tax Act provides a reduction of inheritance tax if assets pass multiple times by death between persons of tax class I within 10 years. The reduction amounts to
[TR="bgcolor: #FAFAFA"]
[TH]% of inheritance tax[/TH]
[TH]Period between death events[/TH]
50 |
Max. 1 year |
[TR="bgcolor: #FAFAFA"]
45 |
more than 1 year, but less than 2 years |
40 |
more than 2 years, but less than 3 years |
[TR="bgcolor: #FAFAFA"]
35 |
more than 3 years, but less than 4 years |
30 |
more than 4 years, but less than 5 years |
[TR="bgcolor: #FAFAFA"]
25 |
more than 5 years, but less than 6 years |
20 |
more than 6 years, but less than 8 years |
[TR="bgcolor: #FAFAFA"]
10 |
more than 8 years, but less than 10 years |
9. Life insurance
Special features arise for life insurance policies paying out to heirs upon the death of the deceased. If no beneficiary is designated in a life insurance, the insurance falls into the estate. Insurances usually designating a beneficiary do not belong to the estate but are nevertheless subject to inheritance or gift tax. The paid insurance sum is aggregated with other taxable acquisition to calculate allowances and tax rates.
Note:
Not yet due life, capital, or pension insurances are valued according to the current surrender value under the Inheritance Tax Reform Act. Previously, valuation was two-thirds of the premiums paid or capital contributions or, alternatively, the lower surrender value.
Practical tip:
Inheritance tax on life insurance can be avoided simply by not choosing the normal setup where the policyholder and insured person are identical. Rather, the policy should be set up, for example, so that the spouse as policyholder takes out life insurance on their partner’s life. Then, in the event of death, the insurance sum payable to the spouse is not subject to inheritance or gift tax.
10. Taxation of pensions, usufructs, and benefits (§ 23 Inheritance Tax Act)
The Ministry of Finance Baden-Württemberg issued, in agreement with the supreme financial authorities of other states, a directive dated September 9, 2008, – 3 – S 3834 / 2 on tax calculation in cases of § 23 Inheritance Tax Act and § 10 Para. 2 Inheritance Tax Act.
According to § 23 Para. 1 Inheritance Tax Act, taxes on the capital value of pensions or other recurring usufructs or benefits may be paid annually in advance by the acquirer’s choice instead of on the capital value.
According to the supreme financial authorities of the states, where the donor has agreed to assume the tax (case of § 10 Para. 2 Inheritance Tax Act), both the donee and the donor assuming payment of the tax on acquisition of a pension or other recurring usufruct or benefit have the choice right pursuant to § 23 Para. 1 Inheritance Tax Act.
However, the tax assumed by the donor pursuant to § 10 Para. 2 Inheritance Tax Act shall not meet the requirements of § 23 Para. 1 Inheritance Tax Act, even if it relates to the capital value of the pension or other recurring usufruct or benefit. The assumed tax shall be regarded as an independent acquisition, which is not a claim to pension or other recurring usufruct or benefit. Consequently, it shall always and fully be taxed immediately.
11. Deferral (§ 28 Inheritance Tax Act)
If business assets or agricultural and forestry assets are inherited or gifted, the inheritance tax payable on them may be deferred upon application for up to 10 years. Deferral interest applies for gifts.
Source: Jura Forum
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