Real Estate Inheritance Tax Calculation Explained
As of 2023, several changes have been implemented in the taxation of real estate inheritance in Germany. Here's a breakdown of what you need to know:
Asset Value Method
The asset factor in the asset value method, used to calculate the taxable value of an inherited property, has been set at least 1.3 from 2023. Additionally, a longer useful life is assumed in this method, which increases the time value of the property.
Tax-Free Allowance
The tax-free allowance for inheritance tax depends on the degree of kinship. For a child, it is 400,000 €, for a grandchild, it is 200,000 €, and for a niece/nephew, it is 20,000 €. If you inherit a property whose value is below your tax-free allowance, it is tax-free.
Family Home Privilege
If you inherit a self-occupied family home (up to 200 sqm of living space), it is tax-free for spouses, children, or grandchildren under certain conditions. Furthermore, if a grandchild inherits a house, they can avoid paying inheritance tax if they move into the immovable property within 6 months of the inheritance and stay there for at least 10 years. This is known as the family home privilege.
Inheritance Tax Rates
The tax rate for inheritance tax ranges between 7-50%, depending on the degree of kinship.
Regional Factors
Depending on the case, a regional factor may also be added. This reflects extreme price increases in popular real estate markets like Munich or Berlin.
Market Value Determination
The market value of an immovable property is determined by the tax office using standardized procedures. If you believe the market value determined by the tax office is too high, you can submit your own appraisal report.
Notification and Inheritance Tax Return
If you inherit an immovable property, you must notify your responsible tax office within 3 months. After registration, the tax office will ask you to submit an inheritance tax return. The same applies to donations.
Effective Tax Increase
The inheritance tax on real estate in Germany was effectively increased in 2023 primarily due to new, stricter valuation rules that raise the assessed market value of properties, leading to a higher tax base. These rules include harsher calculation methods and location-based surcharges, while inheritance tax exemptions have not been adjusted since 2008, thereby increasing tax liabilities for many heirs.
Adjustments to Tax Assessment
Real estate prices have risen sharply in recent years, and the federal government has adjusted the tax assessment of immovable properties to the market situation. This means that the taxable value of inherited properties may be higher than in the past.
In summary, it's essential to be aware of the changes in real estate inheritance tax in Germany, especially the increased market value assessments and the varying tax-free allowances based on kinship. If you inherit a property, it's crucial to notify the tax office within the required timeframe and consider strategies such as gifting parts of the property or specifying costs for furnishing and expenses for grave maintenance on the inheritance tax return to potentially reduce your tax liability.
