There are numerous tax exemptions of which the following are of particular importance:
Exemption of the family home
The family home can be transferred to
- the spouse
- the registered civil partner according to the LPartG (German Civil Partnership Act)
- to children or to children of already deceased children
can be bequeathed tax-free.
The prerequisite for the tax-free acquisition of the spouse or the registered civil partner is that the dwelling:
- was used by the testator for his or her own residential purposes up to the time of the inheritance, or
- could not be used for residential purposes for compelling reasons, and
- is immediately intended for the acquiring person's own use for his or her own residential purposes.
The prerequisite for the tax-free acquisition of the children or the children of already deceased children (grandchildren) is that the dwelling was
- was used by the testator for his or her own residential purposes up to the time of the inheritance, or
- could not be used for residential purposes for compelling reasons and
- the acquiring person immediately intends to use the dwelling for his or her own residential purposes, and
- the living space of the dwelling does not exceed 200 m².
In the case of larger dwellings, the exemption is only granted for 200 m² of living space.
The exemption ceases to apply retroactively if the family home is no longer used by the heir within ten years of acquisition, unless the heir is prevented from using it for his or her own residential purposes for compelling reasons.
Exemption of rented apartments
Dwellings rented out for residential purposes that are not business assets are assessed at 90% of their fair market value. The rented property must be located in Germany, in a member state of the European Union or in the European Economic Area.
Exemption of business assets
There are two options for company heirs. The choice between the two options is binding and cannot be subsequently revoked.
Legal situation until 30.06.2016:
Option 1 (Regelverschonung):
Company heirs who continue the inherited business in its core for five years are spared taxation on 85% of the transferred business assets, provided that the payroll after five years is not less than 400% of the payroll at the time of inheritance. In addition, the share of administrative assets in total business assets may not exceed 50 %. For smaller businesses, there is a sliding-scale deduction amount of EUR 150,000.
Option 2 (Option Verschonung):
Company heirs who continue the core of the inherited business for seven years are completely exempt from inheritance tax, provided that the payroll after seven years is not less than 700 % of the payroll at the time of inheritance. In addition, the share of administrative assets in the total business assets may not exceed 10%.
Legal situation as of 01.07.2016:
Administrative assets are always taxed, even if the share of administrative assets in the total business assets is up to 90% (Regelverschonung) or up to 20% (Optionsverschonung).
The percentage to be complied with depends on the number of employees.
For large acquisitions (over € 26 million per acquiring person), there are application options for the assessment of the need for a tax exemption (no tax exemption reductions of 85% or 100%, but disclosure of own non-business assets) or reduction of the tax exemption reduction of 85% or 100% as the amount of the acquisition increases.
In the case of acquisition of business assets, advice from members of the tax advisory professions is advisable.
Further tax exemptions:
- the actual or fictitious equalisation claim upon termination of the community of gains,
- the waiver of the assertion of the claim to a compulsory portion, insofar as no compensation is paid for this,
- Household effects including linen and clothing in the case of acquisition by persons in tax class I per acquiring person up to and including EUR 41,000,
- other movable tangible property acquired by persons in tax category I up to EUR 12,000 per acquiring person; this does not include means of payment, securities, coins, precious metals, precious stones and pearls or property belonging to agricultural and forestry assets, real property or business assets,
- Household effects, including linen and clothing, as well as other movable tangible property, provided that the total value does not exceed EUR 12,000 per acquiring person when acquired by persons in tax categories II and III,
- the usual occasional gifts.