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Can inheritance and gift tax be deferred?

As a rule, it will be possible and reasonable to settle the accruing inheritance and gift tax from the acquired or own assets. A deferral in accordance with general principles (§ 222 of the German Fiscal Code) cannot therefore be granted in most cases.

However, the Inheritance and Gift Tax Act contains a special provision in § 28 ErbStG. When acquiring business assets or agricultural and forestry assets, the acquiring person has a legal claim to deferral of the tax insofar as this is necessary to maintain the business. Under this condition, the acquiring person is entitled to defer the tax on the business assets or on the agricultural and forestry assets for up to ten years upon application. In the case of acquisitions on account of death, the deferral is interest-free; in the case of gifts, interest is payable. For acquisitions as of 01.07.2016, the following applies: The maximum possible deferral period is 7 years, deferral is only possible for acquisitions by reason of death and it is only interest-free for the first year.

The deferral rule also applies to the acquisition of subsidized rented residential real estate and to the acquisition of a single-family and two-family house or residential property used for the acquiring person's own residential purposes, insofar as the acquiring person could only pay the tax on these properties by selling these assets. The maximum possible deferral period is 10 years. In the case of acquisitions on death, the deferral is interest-free; in the case of gifts, interest is payable.Here, the following applies for acquisitions from 01.07.2016 to 14.12.2018: the deferral is interest-free only for the first year; from the second year, interest is payable both for acquisitions on death and for gifts. For acquisitions on or after Dec. 15, 2018: deferral is at interest from the first year for gifts, and at no interest for acquisitions at death.

However, there is no entitlement to deferral under the Inheritance and Gift Tax Act if the acquiring person pays the tax for

  • the acquisition of business assets and agricultural and forestry assets
  • for the acquisition of residential property let at a preferential rate
  • for the acquisition of a single-family or two-family house or residential property used by the acquiring person for his or her own residential purposes

from other assets acquired or from his or her own assets.

 

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