Learn about the taxes you may owe after losing a loved one—including inheritance brackets, tax-free allowances, and more.
8 min read
There’s a lot to think about when you lose a loved one, and the practical and financial matters are especially hard to manage when you’re grieving. What happens to your loved one’s estate? Is there a will? To make at least one part feel less stressful, we’ve put together the key information about inheritance tax and tax-free allowances in Germany. We’ll explain what the tax brackets are, how much inheritance tax you might have to pay, and if you might be eligible for tax exemptions on inheritance.
Inheritance tax in Germany
Inheritance tax was introduced in Germany at the start of the 20th century. When a person dies, their assets are transferred to their heir. For the inheritor, this is considered to be a form of income—and therefore taxable, just like earnings or capital gains. This type of tax doesn’t only apply to inheritance, but also to any large amounts of money given to you by a living person (known as the “gift tax”).Taxing inheritance is intended to help redistribute capital so it benefits the general public. It’s not without controversy, though—this type of tax draws criticism from families who see it as unfair or intrusive. And wealthy families aren’t the only ones affected. Families who earn at or below average can be significantly impacted by the amount of inheritance tax that is charged.
The different tax brackets
The amount of inheritance tax you’ll have to pay depends on your relationship to the person who has died. There are several brackets with different rates of inheritance tax for next-of-kin, close family members, or more distant relatives. Bracket I is for immediate family members—this includes children, grandchildren, parents, and grandparents, along with spouses and common-law partners. Even though they aren’t biologically related to the deceased person, spouses or common-law partners often helped to build up shared assets. This entitles them to a more generous inheritance tax rate.Parents-in-law, siblings, and siblings’ children fall under Bracket II, as do divorced spouses (as long as they’ve been named in the will). Family members in this bracket pay higher tax rates on their inheritance than those in Bracket I. Bracket III includes extended relatives, such as aunts and uncles, cousins, friends, and unregistered common-law partners. Inheritance tax is highest in this bracket, depending on the specific assets. This means that the surviving partner of an unmarried couple, for example, will likely face a large tax bill—even if the deceased person left a will.
Here is an overview of the inheritance tax brackets:
Bracket I (immediate family members)
Spouses and common-law partners
Children, adopted children, and step-children
Grandchildren
Parents and grandparents
Inheritance tax rate: between 7% and 30%, depending on the value of the assetBracket II (close relatives)
Siblings
Nieces and nephews
Inheritance tax rate: between 15% and 43%, depending on the value of the assetsBracket III (other persons)
Aunts and uncles
Cousins
Unregistered/unmarried life partners
Friends
Inheritance tax rate: 30% or 50%, depending on the value of the assets
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Tax Class I: Close relatives (spouses, children, etc.)
Tax Class II: More distant relatives (siblings, nieces/nephews, etc.)
Tax Class III: Non-relatives or very distant relatives
Is there an allowance for inheritance tax?
In calculating inheritance tax, you’ll need to consider more than just the applicable tax rate. Various tax-free allowances also apply to inheritance tax. Spouses and common-law partners don’t just benefit from lower tax rates, but also from higher allowances. This means that—up to a specific amount—assets are tax-free. For example, if you fall into Bracket I and inherit €200,000 from a grandparent, this amount will be exempt from any tax. Why? Let’s have a closer look at the different tax-free allowances and how it all works.
Personal Allowances for Inheritance Tax
Tax Class
Persons
Allowance (€)
1
Spouse
500,000
1
Children, grandchildren (if their parents are deceased)
The allowance for spouses and common-law partners is €500,000. Plus, according to Section 17 of the German Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz—ErbStG), spouses and common-law partners also receive a tax-free benefits allowance of €256,000. This means that inheritance tax for spouses is only due when the inheritance is more than €756,000 in value.
Tax-free allowance for inheritance tax—children
How high is inheritance tax for children? They also come under Bracket I but have a base allowance of €400,000, tax-free. Children also have an additional age-dependent tax-free allowance that’s intended to give them more financial security. The younger the child is when their parent dies, the more years that they will go—so the thinking goes—without the advantages and financial support that their parent could have provided. Therefore, the additional tax-free allowance is higher for young children. Here’s a breakdown of this additional age-based tax-free allowance:
Children aged 0–5: €52,000
Children aged 5–10: €41,000
Children aged 10–15: €30,700
Children aged 15–20: €20,500
Children aged 21–27: €10,300
There’s no difference if you’re inheriting from a biological parent, a step-parent, or an adoptive parent. And there’s a special exception for orphaned children who later inherit from a grandparent. In this case, their tax-free allowance for inheritance from their grandparents is €400,000 instead of €200,000.
Tax-free allowance for inheritance tax—relatives and other persons
Brackets II and III have a €20,000 tax-free allowance for inheritance tax. This applies equally to siblings, cousins, and friends. It’s only the tax rates that differ—and this is determined by the closeness of your relationship with the deceased. In many cases, this means inheritance can lead to a significant tax burden. For example, if you’re in Bracket III and inherit assets or a property, you’ll have to pay an inheritance tax rate of 30% on amounts between €75,000 and €6,000,000—and 50% on amounts greater than €6,000,000.Here’s an example: If you inherit €70,000 from your uncle or your friend, you’ll pay €21,000 to the tax authorities. If you were in Bracket I, you wouldn’t pay a cent. If you’re in a higher tax bracket and you inherit property, paying taxes on it can also be difficult. Your tax bill might be 30% or 50% of the value of the property, but fixed assets like property typically can’t be flexibly divided like a cash inheritance can. You can find more information on property below.
Tax deductions from estate liabilities
As with income tax, there are also opportunities for deducting expenses from your taxable amount. These can include paying off any debts that the deceased person had, funeral costs, expenses for maintaining the gravesite, and the costs of managing the estate, such as property clearance. You can deduct a flat amount of €10,300 for these expenses and usually don’t need to provide any receipts. You can also deduct income tax arrears and any other financial liabilities that the deceased person left behind. If the tax-free allowance for your inheritance is low, tax deductions can be particularly beneficial for you.
Inheritance tax and tax-free allowance in the case of property
Property such as a house or apartment is often part of a person’s estate—this could be your parent’s house or your uncle’s bachelor apartment. When calculating inheritance tax, the main thing to consider is whether you’re personally living in the home or not. If a spouse, registered partner, or child inherits the home they’re living in, they don’t pay any inheritance tax—regardless of the tax-free allowance. But, they’re required to continue living in the home for at least 10 years (with a few exceptions—for example, if they have to move into a care home). A couple more things to mention here: If you inherit your parent’s house, only an area of 200 m2 is exempt from tax. If you don’t live in the home yourself (if you use it as a second home or vacation apartment, for example), then the exemption doesn’t apply.
When will the tax authorities be in touch about inheritance tax?
Inheritance tax is usually due once you receive your inheritance. However, after the person’s death, you have three months to submit an inheritance tax declaration to the tax authorities. This is when you can specify, for example, the burial costs and any other expenses you paid. This guide gives you some general tips for filling out your tax declaration.After submitting your declaration, any applicable inheritance tax will be calculated and you’ll receive a tax bill with the exact deadline for paying your inheritance tax. If you can’t afford to pay the entire balance at one time, there are options for deferral, like paying in installments. And don’t forget: if you’re only inheriting debts or if the inheritance would significantly disadvantage you in any other way, you have the option of disclaiming the inheritance.
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