Inheritance Tax

What is inheritance tax?

Inheritance tax is the term used to describe the taxation of an inheritance in the course of which assets pass from the deceased testator to the heir.

Why is inheritance tax levied?

If, in the event of death, property passes from the deceased to the heir as an inheritance, the property is subject to taxation based on the relationship between the deceased and the heir and based on the value, the so-called inheritance tax. Inheritance tax is only levied when the transferred assets are passed on to the heir as an inheritance upon the death of the deceased. However, gift tax can also be levied before the death of the deceased if assets exceeding a certain exempt amount change hands. For this reason, inheritance tax is often also called gift tax. A general tax-exempt amount is established, especially for close relatives, who do not have to pay tax. For example, the spouse of the deceased deceased can inherit an estate of 500,000 euros tax-free or receive it as a gift. In this way, the State allows a rebate in the case of inheritances from close relatives through higher tax allowances and low tax rates. The tax rate is a minimum of 7% and a maximum of 30% after the tax-free amount has been used up. The tax rate after tax relief depends on the degree of kinship and the tax bracket. The tax-free amount is lower and the tax rates higher the more distant the relationship to the deceased. For example, the general tax-free amount for the deceased’s siblings in tax class II is only 20,000 euros.

When is inheritance tax due in Frankfurt?

Inheritance or gift tax is only levied when the tax-exempt amount of the transferred assets has been exhausted. Therefore, in the case of close relatives, the inheritance of EUR 500,000 is still considered tax exempt, everything from there on is subject to tax.

When does inheritance tax become time-barred?

In principle, inheritance tax cannot prescribe. Every heir is obliged to file a special inheritance tax return when an inheritance or gift is received. The death and subsequent inheritance is also accompanied by the state or the tax authorities becoming aware of the estate of the deceased testator through the corresponding notification from the bank to the tax office. As the State knows how much money belongs to the estate assets, there is almost never a criminal prosecution for undeclared inheritance tax. However, if the inheritance tax return has not been filed, the statute of limitations for inheritance tax expires after three to ten years, depending on the amount of the inheritance. If you have any questions, please contact our law firm in Frankfurt am Main. Our colleagues will be pleased to inform and advise you (also by telephone).

How much is inheritance tax and how is it calculated?

Inheritance or gift tax depends, among other things, on the family relationship between the testator and the heir, as well as on the amount of the assets passed on (whether inheritance or gift). In general, inheritance tax ranges from 7% to 50%.

What happens with inheritance tax in the case of a community of heirs?

Inheritance tax can also be levied on a community of heirs. Each of the heirs is liable for the tax and it is calculated individually according to the number of heirs and the amount of the inheritance.

When is the inheritance tax due?

Although there is no fixed date for this, there is an obligation to pay the inheritance tax immediately upon notification of the inheritance. Therefore, the tax obligation arises at the moment of death. This obligation is fulfilled by filing the so-called inheritance tax return. In the event that the inheritance is not available as a liquid asset, it is possible for the heir to apply for a so-called temporary deferral. In this way, the heir has more time to liquidate the assets and to be able to calculate the amount of the assets and thus the amount of inheritance tax.

Who collects the inheritance tax?

Inheritance tax is collected by the corresponding inheritance tax office, to which the inheritance tax return must also be submitted.

Why can’t inheritance tax be avoided by making a gift?

A gift in which a major asset changes hands while the testator is alive is treated in the same way for tax purposes as an inheritance that does not occur until the testator’s death. By doing so, the state or tax authorities want to prevent elderly people from avoiding inheritance tax by simply making larger gifts of assets in old age. Inheritances and gifts have the same tax breaks and tax rates. However, if you plan ahead, you can avoid the tax burden in the sense that every 10 years the entire allowance can be made available again to make a gift. Contact our law firm in Frankfurt am Main and talk to your lawyer for clarification.

How are securities assessed for inheritance tax purposes?

Also in the case of securities, the date of death is generally considered the cut-off date for tax liability. In this context, assets that are not directly accessible as capital assets, but were invested in shares or certificates, behave similarly to the procedure for material inheritances. In this case, the value of the securities on the date of death is considered taxable, so the securities are also included in the tax-free amount pot. If, for example, the wife inherits €100,000 in capital assets and €410,000 in securities, this results in an inheritance of €510,000; consequently, the €10,000 in excess of the tax-free amount must be taxed. Although the cut-off date for determining the value is usually the date of death of the deceased, there may be exceptions when determining the market value of the securities. The reason for these exceptions is primarily the sharp fluctuation in stock market values between the date of the decedent’s death and the receipt of the certificate of inheritance; consequently, the value must be reduced accordingly.

How are real estate assets calculated for inheritance tax purposes?

In the case of real estate, the situation is identical to that of transferable securities as inheritance: the market value of the real estate must be determined and taxed accordingly.

How long can I reclaim the overpaid inheritance tax in Frankfurt?

If it is the case that incorrect values or not all assets have been recorded in the inheritance tax assessment, the inheritance tax will be recalculated in accordance with the collection ordinance.  

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