Meaning of Inheritance Tax
In Germany, enormous assets are inherited or given away every year. In 2015 alone it was 102 billion euros. That arouses desires. The state demands a share. Because of their great similarity, inheritance and gift taxes are often combined. But there are also a few differences.
- In Germany, enormous assets are inherited or given away every year. Among other things, the state demands a share.
- In the case of inheritance tax, the tax exemption is 100,000 euros, and only 20,000 euros are tax-free for gifts.
- Spouses or children of the deceased pay a lower tax rate than heirs who were not related to the deceased.
- The higher the wealth, the more inheritance tax the heirs have to pay on it.
The inheritance tax and the tax exemptions
Anyone who begins to distribute his estate to the later heirs while still alive can also transfer larger assets without high taxes. In this overview you will find out how the tax class, the degree of relationship and the amount of inheritance affect the tax. According to abbreviationfinder, IHT stands for Inheritance Tax.
Inheritance tax and gift tax exemptions are usually the same
In most cases the personal allowance is the same. The beneficiary does not have to pay inheritance tax or gift tax on this. The legislature makes the only exception for parents and grandparents. In the case of inheritance tax, your tax exemption is 100,000 euros, and only 20,000 euros are tax-free for gifts. In principle, the more closely the beneficiary is related to the testator or the donor, the higher the tax exemption.
Tax class determined by the tax rate
The division into a tax class also depends on the degree of relationship. Spouses or children of the deceased pay a lower tax rate than heirs who were not related to the deceased. Inheritance tax is only due for that part of the inheritance that exceeds the personal allowance. The following table provides an overview of the exemptions and tax classes depending on the degree of relationship:
|Degree of kinship||Allowance||Tax class|
|Spouses, registered partners||500,000 euros||I.|
|Children, stepchildren, adopted children||400,000 euros||I.|
|Parents and grandparents||100,000 euros||I.|
|Siblings, nieces, nephews, business partners||20,000 euros||II|
|All remaining heirs||20,000 euros||III|
The higher the inheritance, the higher the tax rates
In addition to the tax class, the amount of the inheritance also has an impact on the tax rate. The higher the wealth, the more inheritance tax the heirs have to pay on it. The table shows the tax rates for the individual tax classes:
|Assets up to 75,000 euros||7%||15%||30%|
|Assets up to 300,000 euros||11%||20%||30%|
|Assets up to 600,000 euros||15%||25%||30%|
|Assets up to 6,000,000 euros||19%||30%||30%|
|Assets up to 13,000,000 euros||23%||35%||50%|
|Assets up to 26,000,000 euros||27%||40%||50%|
|Assets over 26,000,000 euros||30%||43%||50%|
Use tax exemptions multiple times
If you want to transfer a large fortune to your descendants and save inheritance tax, you can give away part of the inheritance to the later heirs during your lifetime. In this way, the tax allowances can be used again every ten years.
Those who start early to divide their assets among the later heirs can also transfer larger sums tax-free. A 60-year-old, for example, can give each of his children a tax-free gift of 1.2 million euros up to their 80th birthday. In addition, there are another 600,000 for each grandchild.
There is only a supply allowance for inheritance tax
In addition to the general allowances, spouses and children up to 27 years of age receive a so-called pension allowance. For spouses and registered partners, this is 256,000 euros. The pension allowance for children up to 5 years of age is 52,000 euros. In older children it is always lower. Between the ages of 20 and 27 it is 10,300 euros. The pension allowance is added to the general allowance (see table). However, it is only available for inheritance tax. It cannot be applied to gifts.
Inheritance tax on real estate
Often an inheritance consists not only of cash, but also of real estate. They are a special case when they are offset against the tax exemptions. If spouses inherit a house in which they live, they do not have to pay inheritance tax on it. The value of the property is not offset against the other allowances. The same is true of the testator’s children. However, only properties with a living space of up to 200 square meters are exempt from inheritance tax. The condition for the tax exemption is always that the heirs live in the property for at least 10 years.
Every other heir has to pay inheritance tax on the market value of the inherited property. Only your allowance will be deducted beforehand. However, the regulations in the Inheritance Tax Act (ErbStG) for inheriting real estate are very detailed and highly complex. We therefore recommend all heirs to seek the help of a professional tax advisor.