Inheritance tax in Germany: A complete guide

If you’re living permanently in Germany as a UK expat, it’s important to get to grips with the tax system there.

One potentially complicated area of tax law relates to inheritances. In this guide, we’ll be taking a look at inheritance tax in Germany and how the country’s laws may apply to you and your family.

This could be useful if you’ve retired to Germany and plan to see out your days there, or if you have older relatives living in the country.

So, read on for everything you need to know, including tax rates, allowances and info on who pays inheritance tax in Germany.

We’ll also show you how to send large amounts of money securely between countries using the Wise Account. This can be extremely useful if you have inheritance tax to pay, or want to send money from an inheritance back to the UK.

What is inheritance tax?

Inheritance tax, known as IHT in the UK, is a tax paid to the government on the estate of someone who has died. The ‘estate’ usually encompasses all property and possessions, as well as savings, investments and pensions.

Many countries have inheritance tax systems. Depending where in the world you are, the tax may be known as estate tax, inheritance tax or succession tax.

However, not all countries have this kind of tax in place. Australia, Singapore, Sweden and Norway are among a handful of countries which don’t charge inheritance tax at all.¹

Inheritance tax in Germany

In Germany, inheritance tax is translated as Erbschaftsteuer. There are national laws relating to it, overseen by the federal government and applying to the whole country. Unlike in other EU countries such as Spain, there aren’t any regional variations to these laws.²

And unlike in the UK, inheritance tax is charged to individual beneficiaries, rather than being levied on the estate. This is similar to other European countries such as France and Spain.

Who pays inheritance tax in Germany?

German inheritance taxes will be due if any of the following is true:²

• The beneficiary is a German taxpayer
• The deceased was a German taxpayer
• Certain assets are located in Germany.

This may mean that you need to pay it if you’re a UK expat living in Germany and are considered to be a German taxpayer, even if property and assets are located in other countries. It may also apply if you’re based in the UK and inherit money from a relative based in Germany.

Each beneficiary will need to pay inheritance tax to the authorities. This is different to how it works in the UK, where a lump sum of tax is paid out of the estate.

It’s important to get professional tax advice to double check which country’s tax laws apply to you, especially if you live between countries or have property in multiple countries.

Inheritance tax rates in Germany

In the UK, a flat rate of tax is applied to estates valued over a certain sum. However, it works differently in Germany.

The German system uses progressive tax rates, which fall into bands based on the value of the inheritance each beneficiary receives. The rate will also depend on the relationship of the beneficiary to the deceased person.

Another crucial thing to know about is personal allowances. Each beneficiary has a personal tax-free allowance, meaning they can inherit anything up to that threshold without having to pay taxes. The allowances are set by the beneficiary’s relationship to the deceased. Anything the person inherits above the limit is taxable, with rates varying depending on the amount.

Here are the current personal allowance thresholds and inheritance tax rates:²

Relationship to deceased	Personal allowance	Inheritance tax rates (depending on inheritance value)
Spouse/civil partner	€500,000	7% to 30%
Children (incl. adopted), stepchildren, grandchildren and great-grandchildren	€400,000	7% to 30%
Grandchildren and great-grandchildren of living children	€200,000	7% to 30%
Parents and grandparents	€100,000	7% to 30%
Siblings, nieces, nephews, step-parents, relatives by marriage, divorced spouse	€20,000	15% to 43%
All other individuals, including legal entities	€20,000	30% to 50%

Taxable assets and exemptions

Under German inheritance laws, all property and assets are included as taxable assets. The estimated value of real estate, possessions and money will be added up, along with the person’s debts (if any). Debts will be subtracted from the assets to come up with the total taxable value of the estate.

However, there are some reliefs and exemptions. This includes exemptions for:²

• Household goods and personal effects valued up to €41,000
• Works of art, cultural assets, or items of scientific interest
• German-based pension plans
• Some business assets
• Gifts to churches or charities.

If you inherit a very large estate of over €26 million EUR, you can apply for an abatement for the tax due - if you are unable to afford the tax bill using your available assets.²

It’s also worth knowing about estate tax in Germany, which can apply if real estate property is part of the deceased person’s estate. Properties exempt from this tax include the following:²

• A property inherited by the spouse
• A property intended for use as the family home for the next 10 years
• A property located in the EU or European Economic Area (EEA)
• Community or jointly-owned property, as well as property with a public interest.

How to calculate inheritance tax in Germany

Here’s an overview of how German inheritance tax can be calculated:

1. The taxable net asset is calculated, by minusing the liabilities (debts) from the value of the inventory of assets.
2. The taxable net asset is then distributed between heirs, according to German inheritance laws and the will of the deceased person.
3. For each beneficiary, the taxable sum is the amount left after their personal allowance has been deducted.
4. On the remaining sum, tax rates will apply according to the value of the inheritance received.

How to pay inheritance tax in Germany

If you are a beneficiary who is liable for inheritance tax, you’ll need to submit an inheritance tax declaration within three months of the person’s death. In this, you can outline any expenses which may affect your liability, such as funeral costs for example.³

After your declaration is submitted, you’ll be sent a tax bill. This will outline exactly how much tax you have to pay, along with an exact deadline for payment.³

If you can’t meet this deadline, you can apply to defer payment or pay in instalments.

You can pay your inheritance tax online, or send a cheque in the post.²

If you’re living in the UK or another country, a solution such as Wise could be ideal for sending a payment for inheritance tax to Germany. You can send money worldwide with Wise, for low fees* and mid-market exchange rates. There’s even a dedicated service for securely sending large amounts.

Wise - For big money transfers at life’s big moments

After reading this, you should have a better idea of how the German inheritance tax system works - and how it applies to you and your family. We’ve looked at personal allowances, rates, exemptions and who has to pay the tax.

We’ve also covered how to pay inheritance tax in Germany. If you need a way to pay inheritance tax, send inherited money back to the UK or generally manage your finances between countries - Wise is the perfect solution.

With Wise, you can hold and convert between 40+ currencies in your online account. And you can send money worldwide for low, transparent fees* and mid-market exchange rates.

If you’re sending a large sum between countries, read our quick guide on what documents you’ll need. Whether you’re paying foreign bills or trying to get the best exchange rates when repatriating funds from overseas back to the UK, your Wise account can do it all.

FAQs about inheritance tax in Germany

Below are some of the most frequently asked questions:

How much money can you gift in Germany tax-free?

The personal allowances which apply to inheritance tax in Germany are also used for gift tax, which is gifts of money between living relatives. So, you can gift a family member between €20,000 and €500,000 tax-free, depending on the closeness of your family relationship.⁴

Do I pay UK tax on German inheritance?

The UK and Germany have a double taxation treaty (which ensures expats don’t pay tax on the same income twice) but it doesn’t apply to inheritance. This could mean that you have to pay UK tax on German inheritance, depending on your tax and domicile status.

It’s recommended to get expert tax advice on which country’s tax laws apply to you and what your obligations are.

How is inheritance divided in Germany?

Germany uses a system called universal succession. This is where close relatives such as children, spouses and parents are entitled to inherit the largest share of the deceased person’s assets, without the need for a court ruling or an executor for the estate.²

However, the person can also name whoever they want as a beneficiary in their will, and can include a close relative from their will (this can also be contested).²

Which EU countries have no inheritance tax?

Within the EU, the following countries have no inheritance taxes:⁵

• Austria
• Cyprus
• Estonia
• Latvia
• Malta
• Romania
• Slovakia
• Sweden.

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Sources used:

1. The Telegraph - The countries that abolished inheritance tax – and are now booming
2. Expatica - Inheritance tax and estate taxes in Germany
3. N26 - Your guide to German inheritance tax
4. Bankenverband.de - Money as a Christmas present – are there rules or limits?
5. Euro News - Inheritance tax across Europe: How do the rules, rates and revenues vary?

Sources last checked on date: 20-Aug-2024