Topics A-Z Explanations: Inheritance and gift tax

Altenteil

A bundle of rights reserved by parents who transfer a farm or house to the next generation during their lifetime: a right of residence, maintenance, care and sometimes a pension in kind. It is the traditional German form of the lifetime handover, and it is still common in rural transfers. For tax it reduces the value of the gift, and the reserved rights are valued and capitalised under the Valuation Act rather than taken at face value.

Das Altenteil bezeichnet die bei der Übergabe eines Hofes oder Hauses vorbehaltenen Versorgungsrechte: Wohnrecht, Verpflegung, Pflege und Naturalleistungen. Schenkungsteuerlich mindert der kapitalisierte Wert der Vorbehaltsrechte nach dem Bewertungsgesetz die Bereicherung des Übernehmers. Die Rechte werden im Grundbuch gesichert, üblicherweise als beschränkte persönliche Dienstbarkeit und Reallast.

Alternate valuation date

An election available on a United States federal estate tax return under section 2032 of the Internal Revenue Code to value the gross estate as at six months after death rather than at the date of death, available only where it reduces both the value of the gross estate and the estate tax payable. It is a creature of United States law alone.

Germany has no counterpart. German inheritance tax is assessed on the value at the date the tax arises, which is normally the date of death, and a fall in value afterwards does not reduce it. Where an estate holds securities and the market moves in the months after a death, the two systems can therefore tax the same holding at two different values, and the credit mechanisms do not repair the difference.

Annual exclusion (United States gift tax)

The amount a donor may give to each donee each calendar year without using any part of the lifetime exclusion and without filing a gift tax return. For 2026 it is 19,000 dollars per donee. A married couple may together give 38,000 dollars to each donee. Gifts to a spouse who is not a United States citizen have their own, much larger annual figure, 194,000 dollars for 2026, because the unlimited marital deduction is not available to a non-citizen spouse.

The exclusion is a United States concept and buys nothing in Germany. A gift of 19,000 dollars from an American parent to a child living in Germany is free of United States gift tax and fully within the German gift tax base, where it is measured instead against the German allowance of 400,000 euros per parent per child per ten years. Programmes of annual gifting designed around the American figure therefore tend to be the wrong shape for a family with a child in Germany, where a single larger transfer inside the German allowance is usually more efficient.

Anzeigepflicht (duty to notify the German tax office)

Section 30 of the German Inheritance and Gift Tax Act (ErbStG) requires every person who acquires anything by inheritance or gift to notify the competent German tax office in writing within three months of learning of the acquisition. In gift cases the donor is under the same duty. The notice is short, but it is a legal obligation and not a formality, and failure to give it is the ordinary route by which an innocent cross-border transfer becomes a tax-evasion problem years later.

The usual exemption, for acquisitions evidenced by a German court, notarial or consular document, does not apply where the acquisition includes real property, business assets or foreign assets. Since almost every German-American case involves foreign assets, the duty applies in practice to almost all of them. The return itself, if the tax office asks for one, is governed by section 31 ErbStG, which requires a period of at least one month to be allowed for it.

Nach § 30 Abs. 1 ErbStG hat jeder Erwerber den Erwerb binnen drei Monaten nach erlangter Kenntnis schriftlich dem zuständigen Erbschaftsteuerfinanzamt anzuzeigen; bei Schenkungen trifft die Pflicht nach § 30 Abs. 2 ErbStG auch den Schenker. Die Ausnahme des § 30 Abs. 3 ErbStG für gerichtlich oder notariell beurkundete Erwerbe gilt nicht, wenn Grundbesitz, Betriebsvermögen, Anteile an Kapitalgesellschaften oder Auslandsvermögen zum Erwerb gehören, sodass sie in deutsch-amerikanischen Fällen praktisch nie eingreift.

Applicable exclusion amount

The amount that can pass free of United States federal estate and gift tax, expressed through a unified credit. For 2026 it is 15,000,000 dollars per person, following the One Big Beautiful Bill Act, with a top rate of 40 per cent above it. The generation-skipping transfer tax exemption is the same figure.

It is available in full only to a United States citizen or a decedent domiciled in the United States. A decedent who was neither has a credit of 13,000 dollars, equivalent to an exclusion of 60,000 dollars, on United States situs assets, and that figure is not indexed for inflation. The estate tax treaty between the United States and Germany improves on that: Article 10(5), added by the 1998 protocol, gives the estate of a person domiciled in Germany a pro rata share of the full American exclusion, in the proportion that the United States situs estate bears to the worldwide estate. Claiming it requires disclosure of the worldwide estate to the Internal Revenue Service, which is a decision with consequences of its own.

Appraisals and valuation

Both systems tax value, and neither accepts the other’s figure. A United States federal estate tax return requires fair market value, supported by a qualified appraisal for real property, closely held businesses, art and collectibles. Germany values under its own Valuation Act (Bewertungsgesetz), which prescribes a comparison, capitalised-income or asset-value method according to the type of property, and which since the reform effective from 2023 produces markedly higher figures for German real estate than it did before.

Section 198 of the German Valuation Act allows a taxpayer to displace the statutory figure by proving a lower open market value, normally through a qualified appraisal or an arm’s length sale close to the valuation date. Where German property has been over-valued by the statutory method, that proof is frequently the largest single saving available in the matter, and it has to be made in the assessment, not afterwards.

Beschränkte Steuerpflicht (limited German tax liability)

Where neither the decedent or donor nor the acquirer is resident in Germany, German inheritance and gift tax reaches only German situs assets, listed in section 121 of the Valuation Act: German real estate, German business assets and permanent establishments, shareholdings of at least 10 per cent in German companies, German registered intellectual property, and claims secured on German land. German bank accounts and portfolio securities are not on the list.

The personal allowance is not lost in these cases but it is reduced pro rata, under section 16(2) ErbStG, in the proportion that the assets outside the German tax net bear to the whole acquisition from that person over the relevant ten-year window. The European Court of Justice held that reduction compatible with the free movement of capital in case C-394/20, while holding in the same judgment that the denial of a deduction for compulsory share claims in limited liability cases is not.

Die beschränkte Steuerpflicht nach § 2 Abs. 1 Nr. 3 ErbStG erfasst nur Inlandsvermögen im Sinne des § 121 BewG. Der persönliche Freibetrag wird nach § 16 Abs. 2 ErbStG anteilig gewährt, gemindert im Verhältnis des nicht der beschränkten Steuerpflicht unterliegenden Vermögens zum Gesamterwerb innerhalb von zehn Jahren. Der EuGH hat diese Kürzung in der Rechtssache C-394/20 als unionsrechtskonform angesehen, die Versagung des Pflichtteilsabzugs nach § 10 Abs. 6 ErbStG dagegen beanstandet.

Bestattungskosten

Funeral costs are borne by the heirs and are deductible as an estate liability. For German inheritance tax the costs of the funeral, the grave monument and the customary care of the grave, together with the costs of administering the estate, are deductible, and a lump sum is allowed without proof. Where the death occurs in one country and burial in the other, the cost of repatriation is part of it.

Die Kosten der Bestattung trägt nach § 1968 BGB der Erbe. Erbschaftsteuerlich sind die Kosten der Bestattung, eines angemessenen Grabdenkmals, der üblichen Grabpflege sowie die Kosten der Nachlassregelung nach § 10 Abs. 5 Nr. 3 ErbStG abzugsfähig; ohne Nachweis wird ein Pauschbetrag von 15.000 Euro je Erbfall gewährt. Überführungskosten aus dem Ausland gehören dazu.

Betriebsvermögen (German business property relief)

Sections 13a and 13b ErbStG exempt qualifying business property from German inheritance and gift tax, either at 85 per cent as of right or at 100 per cent by irrevocable election. The 85 per cent relief requires the business to be held for five years and the payroll over those five years to reach 400 per cent of the starting payroll; the 100 per cent relief requires seven years, 700 per cent, and administrative assets of no more than 20 per cent. Businesses with five or fewer employees are exempt from the payroll test.

Relief is denied altogether where administrative assets reach 90 per cent of the value of the business, which catches the family holding company that is in substance a securities portfolio. Above 26,000,000 euros per acquirer the acquirer must choose between a sliding reduction of the relief under section 13c ErbStG and a means test under section 28a ErbStG, under which the tax is remitted only so far as it cannot be paid out of half of the acquirer’s other assets, including assets the acquirer already owned. For a family with a German operating business and members in the United States, the relief is valuable and fragile, and it interacts badly with American structures that sit between the family and the business.

Der Verschonungsabschlag beträgt nach § 13a Abs. 1 ErbStG 85 Prozent bei einer Behaltensfrist von fünf Jahren und einer Mindestlohnsumme von 400 Prozent, bei der Option nach § 13a Abs. 10 ErbStG 100 Prozent bei sieben Jahren, 700 Prozent und höchstens 20 Prozent Verwaltungsvermögen. Betriebe mit bis zu fünf Beschäftigten sind von der Lohnsummenprüfung ausgenommen. Erreicht das Verwaltungsvermögen 90 Prozent, entfällt die Verschonung vollständig.

Bewertungsgesetz (German Valuation Act)

The statute that fixes what an asset is worth for German inheritance and gift tax. Real estate is valued by comparison where comparables exist, by capitalised income for let residential and commercial property, and by asset value where neither applies. The Annual Tax Act 2022, effective for valuation dates from 1 January 2023, raised the assumed useful life from 70 to 80 years, reduced the capitalisation rates, and increased the value factors in the asset-value method, with the result that German property is now brought into the tax base at figures materially above those produced under the old rules.

Two reliefs are worth noting. Residential property that is let is brought in at 90 per cent of value under section 13d ErbStG, and following the European Court of Justice in case C-670/21 the German tax authorities extended that discount by decree of 19 June 2024 to property in third countries where information exchange is assured. Section 198 of the Valuation Act allows the taxpayer to substitute a proven lower open market value.

Grundbesitz wird nach den §§ 176 ff. BewG im Vergleichswert-, Ertragswert- oder Sachwertverfahren bewertet. Das JStG 2022 hat für Bewertungsstichtage ab dem 1. Januar 2023 die Gesamtnutzungsdauer von 70 auf 80 Jahre verlängert, die Liegenschaftszinssätze abgesenkt und einen Regionalfaktor eingeführt, was zu erheblich höheren Werten führt. Zu Wohnzwecken vermietete Grundstücke werden nach § 13d ErbStG mit 90 Prozent angesetzt; der Nachweis eines niedrigeren gemeinen Werts ist nach § 198 BewG möglich.

Bezugsberechtigung

The designation of a beneficiary under a German life insurance policy. The proceeds pass to the named person outside the estate, so they are not available to the heirs and, in principle, not to the estate’s creditors either. They are nevertheless a taxable acquisition for German inheritance tax in the beneficiary’s own tax class. A revocable designation can be changed at any time; an irrevocable one cannot. Even an irrevocable designation is not in itself a taxable gift: the taxable acquisition is the benefit that falls due on the insured event (Federal Fiscal Court, II R 70/97, 1999). A gratuitous transfer of the policy itself, by contrast, is a gift when made, valued at the surrender value (Federal Fiscal Court, II R 27/22, 2026).

Die Bezugsberechtigung aus einer Lebensversicherung führt dazu, dass die Versicherungsleistung nach § 331 BGB am Nachlass vorbei unmittelbar dem Bezugsberechtigten zufällt. Erbschaftsteuerlich liegt gleichwohl ein Erwerb von Todes wegen nach § 3 Abs. 1 Nr. 4 ErbStG vor. Zu unterscheiden sind das widerrufliche und das unwiderrufliche Bezugsrecht. Auch die Einräumung eines unwiderruflichen Bezugsrechts unterliegt als solche nicht der Schenkungsteuer; steuerpflichtig ist erst der Erwerb der Versicherungsleistung bei Eintritt des Versicherungsfalls (BFH, Urteil vom 30. Juni 1999, II R 70/97). Anders liegt es bei der unentgeltlichen Übertragung des Vertrags selbst: Sie ist bereits mit der Übertragung eine Schenkung, bewertet mit dem Rückkaufswert (BFH, Urteil vom 28. Januar 2026, II R 27/22).

Charitable giving

A deduction for a gift to charity is generally confined to charities of the donor’s own country. A United States income tax charitable deduction is available only for gifts to domestic organisations, and the United States estate tax charitable deduction under section 2055 is likewise limited, though broader for transfers at death. Germany allows a deduction for gifts to German and European Economic Area bodies that meet German requirements, and exempts transfers to them from inheritance and gift tax under section 13 ErbStG.

Neither treaty supplies a general cross-border charitable deduction, so the usual answer for a family that gives on both sides of the Atlantic is to give from each side to bodies recognised there, or to use an intermediary recognised in both. Giving from the wrong side of the border is one of the more avoidable ways of paying more than necessary.

Domicile

The most dangerous word in this field, because it means three different things. For United States federal estate and gift tax it means physical presence in the United States combined with an intention to remain indefinitely, and it decides whether the 15,000,000 dollar exclusion or the 60,000 dollar figure applies. For the estate tax treaty with Germany it has its own definition in Article 4, with its own tie-breakers. For German inheritance tax the concept is not domicile at all but Inländereigenschaft, which turns on a dwelling or habitual abode in Germany, on German nationality within five years of departure, or on the acquirer’s residence in Germany.

A person can be domiciled in the United States for American purposes, resident in Germany for German purposes, and assigned to one or the other by treaty, all at once and with different results for income tax and for estate tax. Article 4(3) of the estate tax treaty then adds a rule of its own: a person who was a national of one country and not of the other, and who had been domiciled in the other for less than ten years, is deemed for treaty purposes to have remained domiciled in the country of nationality. For an American who moves to Germany that cuts favourably, because an American citizen who dies within ten years of arriving is treated as domiciled in the United States and Germany’s claim to tax the worldwide estate on the decedent’s own residence falls away. It cuts the other way for a German national who emigrates to the United States, who may stay within German worldwide inheritance tax for ten years rather than the five the domestic statute suggests. The rule applies to persons who are nationals of one country only, not to dual German and American citizens, and it does not displace Germany’s separate right, preserved by Article 11(1)(b), to tax an heir who is resident in Germany. See the estates of American citizens who lived in Germany for less than ten years.

Donor’s liability for German gift tax

Section 20(1) ErbStG makes the donor as well as the donee a debtor for German gift tax. The two are jointly and severally liable, and the German tax office may look to either. An American parent who makes a gift to a child living in Germany is therefore not merely the occasion of a German tax; that parent is personally liable for it, in Germany, on a gift of American assets made in the United States.

Section 30 ErbStG places the three-month duty to notify on the donor as well. Neither obligation is displaced by the estate and gift tax treaty, which does not remove Germany’s right to tax by reference to the acquirer’s residence. American families who make substantial annual gifts to a child studying or working in Germany frequently discover both points several years late.

Erbschaftsteuererklärung

The German inheritance tax return. It follows the compulsory notification within three months, and is filed only when the tax office asks for one, which it must allow at least a month for. It requires an inventory of the estate and everything needed to determine the acquisition and its value. Where an executor or estate administrator has been appointed, that person files it. Co-heirs may file jointly.

Die Erbschaftsteuererklärung wird nach § 31 ErbStG auf Anforderung des Finanzamts abgegeben; die Frist muss mindestens einen Monat betragen. Sie hat ein Verzeichnis der Nachlassgegenstände und die für die Wertermittlung erforderlichen Angaben zu enthalten. Ist ein Testamentsvollstrecker oder Nachlassverwalter vorhanden, obliegt ihm nach § 31 Abs. 5 ErbStG die Abgabe. Vorgeschaltet ist stets die Anzeige nach § 30 ErbStG.

Estate tax in Germany

There is none, and the difference is not merely terminological. The United States taxes the estate, as a single fund, before it passes. Germany taxes each acquirer on what that person receives, at that person’s own rate and against that person’s own allowance. The same family wealth therefore produces one American tax computation and as many German ones as there are beneficiaries.

The practical consequences run through every plan. Dividing a German estate among more people reduces the German tax and does nothing to the American tax. Leaving everything to a surviving spouse is efficient in the United States, because of the unlimited marital deduction, and inefficient in Germany, because it wastes the children’s allowances and taxes the same property again on the second death. See inheritance taxes under German law.

Estate tax in the United States on inheritances from Germany

An inheritance received from Germany is not income to the American recipient and is not subject to United States estate tax, which falls on estates and not on receipts. What it does create is reporting. A United States person who receives more than 100,000 dollars in aggregate during a year from a non-resident individual or a foreign estate must report it on Form 3520, and the penalty for not doing so is measured against the amount received rather than against any tax, because there is no tax.

Two further points are commonly missed. If the German decedent held United States situs assets, the German estate itself may owe United States estate tax on those assets, on a 60,000 dollar threshold or the treaty’s pro rata exclusion, and may need an IRS transfer certificate before an American institution will release them. And if the inheritance includes a foreign trust interest or an interest in a foreign company, the recipient may acquire annual reporting obligations that run for as long as the interest is held.

Familienheim (the German family home exemption)

Section 13(1) ErbStG exempts the family home from German inheritance and gift tax in three situations. A lifetime transfer between spouses is exempt without limit of value, size or holding period. A home passing on death to the surviving spouse is exempt provided the decedent occupied it until death, but the exemption is lost retroactively if the survivor stops living in it personally within ten years, unless prevented by compelling reasons such as a need for care. A home passing on death to a child is exempt on the same ten-year condition and in addition only up to 200 square metres of living space, the excess being taxed pro rata.

The relief covers property in Germany, the European Union and the European Economic Area, and not property in the United States. It is also the relief most often forfeited by accident, because an American heir who inherits a German family home and does not move into it, or moves out after five years, loses it entirely and retroactively.

§ 13 Abs. 1 Nr. 4a ErbStG stellt die lebzeitige Zuwendung des Familienheims unter Ehegatten ohne Wert- und Flächengrenze frei. Nach Nr. 4b bleibt der Erwerb von Todes wegen durch den überlebenden Ehegatten steuerfrei, nach Nr. 4c der Erwerb durch Kinder bis zu 200 Quadratmetern Wohnfläche. In beiden Fällen entfällt die Befreiung rückwirkend, wenn die Selbstnutzung innerhalb von zehn Jahren aufgegeben wird, sofern nicht zwingende Gründe entgegenstehen. Begünstigt sind nur Objekte im Inland, in der EU und im EWR.

Form 706 and Form 706-NA

Form 706 is the United States estate tax return for a citizen or resident, due nine months after death with a six-month extension available. Form 706-NA is the return for the estate of a decedent who was neither a citizen nor domiciled in the United States, and it must be filed where the date-of-death value of United States situs assets, together with adjusted taxable gifts and the gift tax specific exemption, exceeds 60,000 dollars.

That threshold is low enough that many German estates cross it without anyone expecting to. A single American brokerage account, or one holiday property, will do it. The return is also the vehicle for claiming the treaty’s pro rata exclusion under Article 10(5) and the additional marital deduction under Article 10(6), neither of which is given automatically, and the marital relief under Article 10(6) requires an irrevocable waiver of the domestic marital deduction, which means giving up the qualified domestic trust route.

Freibetrag (German personal allowance)

The amount each acquirer may receive from each transferor free of German inheritance and gift tax under section 16 ErbStG. A spouse or registered partner has 500,000 euros; children and stepchildren, and grandchildren whose own parent has died, have 400,000 euros; other grandchildren have 200,000 euros; great-grandchildren and parents or grandparents inheriting on death have 100,000 euros; everyone else, including parents receiving a gift, siblings, nephews and nieces and unmarried partners, has 20,000 euros.

Three features distinguish it from the American exclusion. It is per transferor and per acquirer, so a child with two parents has two of them. It renews every ten years under section 14 ErbStG. And it is measured in euros against a rate scale that begins at 7 per cent and reaches 30 per cent in tax class I, where the American system is a single large exclusion followed by a flat 40 per cent. Planning that works well against the American exclusion, such as leaving everything to a spouse, is close to the worst use of the German allowances.

Die persönlichen Freibeträge des § 16 ErbStG betragen 500.000 Euro für Ehegatten und Lebenspartner, 400.000 Euro für Kinder, Stiefkinder und Enkel verstorbener Kinder, 200.000 Euro für übrige Enkel, 100.000 Euro für Urenkel sowie für Eltern und Großeltern beim Erwerb von Todes wegen und 20.000 Euro für alle übrigen Erwerber, einschließlich Eltern bei Schenkungen, Geschwistern, Nichten und Neffen sowie nichtehelichen Lebensgefährten. Sie gelten je Zuwendendem und Erwerber und stehen nach § 14 ErbStG alle zehn Jahre erneut zur Verfügung.

Generation-skipping transfer tax

A separate United States tax, at the top estate tax rate of 40 per cent, on transfers that skip a generation, with an exemption equal to the estate tax exclusion, 15,000,000 dollars for 2026. It applies to direct skips, taxable distributions and taxable terminations, and it is the reason American dynasty trusts are drafted as they are.

Germany has no generation-skipping tax, and its structure works the other way. Giving directly to grandchildren in Germany is positively encouraged by a separate 200,000 euro allowance for each grandchild, rising to the full 400,000 euros where the intervening parent has died. For a family holding assets on both sides, a transfer to grandchildren may consume American exemption while attracting German allowances, and the two effects have to be weighed together rather than in sequence.

German inheritance tax (Erbschaftsteuer)

A tax on the acquirer, not on the estate, charged on what each person receives. Unlimited liability attaches to the whole worldwide acquisition if either the decedent or donor, or the acquirer, was resident in Germany, so the residence of a single American heir is enough to bring an entire American estate within German tax. Limited liability attaches to German situs assets only where no one is resident in Germany.

The rate depends on the relationship and the amount. In tax class I, which covers spouses, children, grandchildren and parents inheriting, rates run from 7 per cent to 30 per cent. In tax class II, covering siblings, nephews and nieces, parents receiving gifts and in-laws, from 15 per cent to 43 per cent. In tax class III, covering everyone else including unmarried partners, 30 per cent up to 6,000,000 euros and 50 per cent above that. See German inheritance tax planning for American families with children living in Germany and the ten-year rule.

Die Erbschaftsteuer ist eine Erbanfallsteuer: besteuert wird der Erwerb des einzelnen Erwerbers, nicht der Nachlass als solcher. Unbeschränkte Steuerpflicht besteht nach § 2 Abs. 1 Nr. 1 ErbStG, wenn Erblasser, Schenker oder Erwerber Inländer ist. Die Sätze betragen nach § 19 ErbStG in der Steuerklasse I 7 bis 30 Prozent, in der Steuerklasse II 15 bis 43 Prozent und in der Steuerklasse III 30 Prozent bis 6 Millionen Euro und darüber 50 Prozent.

Gift planning with adult children who live in Germany

The commonest live problem in American families with a child in Europe. The child’s German residence alone brings the entire worldwide gift into German gift tax under section 2(1) number 1 ErbStG, whatever the donor’s nationality, wherever the assets are and wherever the gift is made. The American annual exclusion of 19,000 dollars is irrelevant to that liability, and the American lifetime exclusion of 15,000,000 dollars gives no German relief.

What does work is the German structure itself. Each parent may give each child 400,000 euros free of German tax, and the allowance renews after ten years, so a couple with two children in Germany can move 1,600,000 euros every decade at no German cost. Timing matters more than amount: the ten years run from each gift, so starting early is worth more than giving more. Gifts of United States real estate, and of interests in closely held companies, raise further questions on both sides and should not be made on the same reasoning. See United States parents with children living in Germany.

Gift taxes in Germany

German gift tax is the same tax as German inheritance tax, in the same statute, with the same allowances, classes and rates, applied to lifetime transfers. The one structural difference is that parents receiving a gift from a child fall into tax class II rather than class I, where they would be on death.

Liability follows residence, and it follows the residence of either party. A gift by an American donor to an American donee is within German gift tax if either of them is resident in Germany. Both donor and donee are liable for the tax under section 20(1) ErbStG and both must notify the tax office within three months under section 30 ErbStG. See United States parents with children living in Germany.

Hausrat

Household goods and personal effects. They are part of the estate, but the surviving spouse takes them ahead of the other heirs on intestacy where there are no descendants, and takes what is needed for a suitable household even where there are. German inheritance tax exempts household effects up to 41,000 euros for acquirers in tax class I, and other movables up to 12,000 euros, with a single 12,000 euro figure covering both for classes II and III.

Der sogenannte Voraus des § 1932 BGB gibt dem überlebenden Ehegatten neben Verwandten der zweiten Ordnung den gesamten Hausrat, neben Abkömmlingen das zur Führung eines angemessenen Haushalts Erforderliche. Erbschaftsteuerlich bleiben Hausrat bis 41.000 Euro und andere bewegliche körperliche Gegenstände bis 12.000 Euro für Erwerber der Steuerklasse I nach § 13 Abs. 1 Nr. 1 ErbStG steuerfrei; für die Steuerklassen II und III gilt ein gemeinsamer Betrag von 12.000 Euro.

Inheritance taxes in Germany

Charged on each acquirer separately, at rates fixed by the relationship, against allowances that renew every ten years. Liability is worldwide where either the decedent or the acquirer was resident in Germany, and confined to German situs assets otherwise. The return follows a compulsory notification within three months, and the undivided estate is liable for the tax of all participants until it is divided.

What Americans most often get wrong is the direction of the liability. It is not the German assets that attract German tax; it is the German residence of any person on either side of the transfer. An American who dies in Ohio leaving a portfolio in Ohio to a daughter in Hamburg produces a full German inheritance tax liability on the whole of that daughter’s share. See inheritance taxes under German law.

Inlandsvermögen (German situs assets)

The category of German assets that attracts German inheritance and gift tax where nobody involved is resident in Germany, defined by section 121 of the Valuation Act. It covers German agricultural and forestry property, German real estate, German business assets and permanent establishments, shareholdings of at least 10 per cent in German companies, German registered intellectual property, assets let to a German business, and claims secured on German land.

It does not cover German bank accounts, German portfolio securities, German insurance policies or shareholdings below 10 per cent. That omission is regularly misstated in American material, and it matters: a non-resident American heir of a non-resident American decedent takes a German brokerage account free of German inheritance tax, and takes a German apartment subject to it.

Inlandsvermögen im Sinne des § 121 BewG umfasst inländisches land- und forstwirtschaftliches Vermögen, inländischen Grundbesitz, inländisches Betriebsvermögen und Betriebsstätten, Anteile an inländischen Kapitalgesellschaften bei einer Beteiligung von mindestens 10 Prozent, im Inland eingetragene Schutzrechte, einem inländischen Gewerbebetrieb überlassene Wirtschaftsgüter sowie durch inländischen Grundbesitz gesicherte Forderungen. Guthaben bei inländischen Kreditinstituten und Wertpapierdepots gehören nicht dazu.

Lebensversicherung im Erbfall

A German life policy with a named beneficiary pays outside the estate, so the money is not available to the heirs and in principle not to the estate’s creditors. It is nevertheless taxed as an acquisition on death in the beneficiary’s own tax class. Where no beneficiary is named, the proceeds fall into the estate. An American policy on the life of a person who was neither a citizen nor domiciled in the United States is outside the American estate tax base, which is one of the few clean points in this field.

Bei benannter Bezugsberechtigung fällt die Versicherungsleistung nicht in den Nachlass, sondern erwirbt der Bezugsberechtigte sie unmittelbar nach § 331 BGB. Erbschaftsteuerlich liegt ein Erwerb nach § 3 Abs. 1 Nr. 4 ErbStG vor. Ohne Bezugsberechtigung gehört die Leistung zum Nachlass. Leistungen aus einer US-Lebensversicherung auf das Leben eines Nichtansässigen unterliegen nicht der US-Nachlasssteuer.

Marital deduction

United States estate and gift tax allows an unlimited deduction for transfers to a spouse, which defers tax to the second death. It is not available where the recipient spouse is not a United States citizen, because there would be no assurance of taxing the property later. The substitutes are a qualified domestic trust and, for lifetime gifts, the annual figure of 194,000 dollars for 2026.

The estate tax treaty with Germany supplies a better answer in many cases. Article 10(6) gives an additional marital deduction equal to the lesser of the value of the qualifying property and the applicable exclusion amount, available where both spouses were domiciled in Germany or the United States and, if both were domiciled in the United States, at least one was a German national. Claiming it requires the executor to waive the domestic marital deduction irrevocably, which means giving up the qualified domestic trust. Germany, for its part, simply gives the surviving spouse a 500,000 euro allowance and a further 256,000 euro pension allowance, and taxes the rest.

Nießbrauch

A usufruct: the right to use property and take its income, while ownership passes to someone else. It is the standard German device for transferring assets to the next generation during life while keeping the income, and it reduces the value of the gift by the capitalised value of the reserved right. The American tax treatment of the same arrangement is entirely different, and a reserved usufruct over property in the United States can pull the whole asset back into the American estate tax base.

Der Nießbrauch nach den §§ 1030 ff. BGB gewährt das Recht, die Nutzungen einer Sache zu ziehen. Bei der vorweggenommenen Erbfolge mindert der nach § 14 BewG kapitalisierte Wert des vorbehaltenen Nießbrauchs die schenkungsteuerliche Bereicherung. Nach US-Recht führt ein vorbehaltenes Nutzungsrecht an in den Vereinigten Staaten belegenem Vermögen dagegen nach Section 2036 IRC zur vollen Erfassung im Nachlass.

Öffnungsklausel

The taxpayer’s escape from the statutory valuation of German real estate. Section 198 of the Valuation Act allows proof that the open market value is lower than the figure the statutory method produces, normally by a qualified appraisal or by an arm’s length sale close to the valuation date. Since the valuation rules were tightened with effect from 2023, this is frequently the largest single saving available in a German estate, and it has to be claimed in the assessment rather than afterwards.

Nach § 198 BewG kann der Steuerpflichtige einen niedrigeren gemeinen Wert nachweisen, als er sich nach dem Vergleichs-, Ertrags- oder Sachwertverfahren ergibt. Der Nachweis erfolgt durch ein Gutachten des Gutachterausschusses oder eines zertifizierten Sachverständigen oder durch einen im gewöhnlichen Geschäftsverkehr zeitnah erzielten Kaufpreis. Seit der Verschärfung der Bewertung durch das JStG 2022 ist dies häufig die wirksamste Entlastung.

Portability

The election on a United States federal estate tax return that allows a surviving spouse to use the unused exclusion of a predeceased spouse, so that a married couple can shelter 30,000,000 dollars in 2026. It must be elected on a timely filed Form 706 even where no tax is due, and it is lost if the return is not filed.

It is available only where the deceased spouse was a United States citizen or domiciliary, and the unused exclusion of a non-domiciled spouse is not portable. Germany has no equivalent at all: each acquirer’s allowance is personal, cannot be transferred and cannot be carried forward, which is why leaving everything to a surviving spouse is efficient in the United States and wasteful in Germany.

Real estate in Germany

German land passes to the heirs at death but cannot be dealt with until they are registered in the Grundbuch, which requires a certificate of inheritance or a notarial will with the record of its opening, and registration within two years of death is free of the registry fee. Every sale requires a notarial deed. Real estate transfer tax on a sale runs from 3.5 to 6.5 per cent depending on the Land, and is not charged on an acquisition by inheritance or gift.

For tax, German real estate is German situs property, so it is within German inheritance and gift tax even where nobody is resident in Germany. It is valued under the Valuation Act on figures that rose materially from 2023, subject to a 10 per cent discount for let residential property under section 13d ErbStG and to the family home exemption. A gain on a sale within ten years of acquisition is taxable in Germany under section 23 EStG, and a United States citizen owner is taxable on the same gain in the United States, computed in dollars, so exchange rate movement alone can produce an American gain where there is no German one.

Real estate in the United States

American real property is United States situs property for estate tax whoever owns it, so a German-resident owner faces United States estate tax against an exclusion of 60,000 dollars, or the treaty’s pro rata share of 15,000,000 dollars if claimed on Form 706-NA. A sale by a foreign person triggers FIRPTA withholding of 15 per cent of the price. Under Article 6 of the income tax treaty rental income may be taxed by the United States, and Germany exempts it while counting it for the rate under the Progressionsvorbehalt.

An American living in Germany who keeps a house in the United States is in a different position: not a foreign person, so no FIRPTA, taxable in the United States on the rent and the gain, taxable in Germany on the same gain if sold within ten years, and relying on the foreign tax credit. The former principal residence exclusion of 250,000 or 500,000 dollars remains available on the American side if the occupancy test is met, and has no German counterpart other than the separate owner-occupation exception in section 23 EStG.

Rückforderungsanspruch

A donor’s right to take a gift back. German law gives it where the donor becomes unable to maintain himself, and where the recipient is guilty of gross ingratitude, and a lifetime transfer agreement will usually reserve further grounds by contract: insolvency of the recipient, disposal of the property, death before the donor, divorce. Reserving them expressly is the ordinary precaution on a transfer to the next generation, and it also allows the gift tax to be recovered if the gift is reversed.

Gesetzliche Rückforderungsrechte bestehen nach § 528 BGB bei Verarmung des Schenkers und nach § 530 BGB bei grobem Undank. In Übergabeverträgen werden darüber hinaus regelmäßig vertragliche Rückforderungsrechte vereinbart, etwa für Insolvenz oder Vorversterben des Erwerbers, Weiterveräußerung oder Scheidung. Wird die Schenkung aufgrund eines vorbehaltenen Rechts zurückgefordert, erlischt die Schenkungsteuer nach § 29 Abs. 1 Nr. 1 ErbStG rückwirkend.

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Sachwert-, Ertragswert- und Vergleichswertverfahren

The three methods by which German real estate is valued for inheritance and gift tax. The comparison method applies to condominiums and one and two family houses where comparable sales exist; the capitalised income method to let residential, commercial and mixed use property; the asset value method where neither of the others can be used. The reform effective from 2023 raised the results of all three materially, which is why proof of a lower open market value is now so often worth making. See Bewertungsgesetz.

Das Vergleichswertverfahren nach den §§ 182 Abs. 2, 183 BewG gilt für Wohnungseigentum sowie Ein- und Zweifamilienhäuser, das Ertragswertverfahren nach den §§ 184 ff. BewG für Mietwohn-, Geschäfts- und gemischt genutzte Grundstücke, das Sachwertverfahren nach den §§ 189 ff. BewG hilfsweise. Das JStG 2022 hat mit der Verlängerung der Gesamtnutzungsdauer auf 80 Jahre, abgesenkten Liegenschaftszinssätzen und einem Regionalfaktor zu deutlich höheren Werten geführt.

Schenkung

A gift: a transfer that enriches the recipient, made gratuitously and with the agreement of both. A promise of a gift requires a notarial deed, though performance cures the defect. What matters for a German-American family is not the civil law but the tax rule that goes with it: German gift tax applies to the whole worldwide gift if either the donor or the recipient is resident in Germany, whatever the nationality of either and wherever the assets are.

Die Schenkung nach § 516 BGB setzt eine unentgeltliche Zuwendung und die Einigung über die Unentgeltlichkeit voraus; das Schenkungsversprechen bedarf nach § 518 BGB der notariellen Beurkundung, der Formmangel wird durch Vollzug geheilt. Schenkungsteuerlich genügt nach § 2 Abs. 1 Nr. 1 ErbStG die Inländereigenschaft des Schenkers oder des Erwerbers, um den gesamten Erwerb der deutschen Besteuerung zu unterwerfen.

Schenkungsteuer

German gift tax, which is the same tax as German inheritance tax, in the same statute, with the same allowances, classes and rates, applied to lifetime transfers. The one structural difference is that parents receiving a gift from a child fall into tax class II rather than class I. Donor and donee are jointly liable, and both must notify the tax office within three months. See Gift taxes in Germany.

Die Schenkungsteuer ist im Erbschaftsteuer- und Schenkungsteuergesetz geregelt und folgt denselben Freibeträgen, Steuerklassen und Sätzen wie die Erbschaftsteuer. Abweichend gehören Eltern bei Schenkungen zur Steuerklasse II. Steuerschuldner sind nach § 20 Abs. 1 ErbStG Erwerber und Schenker als Gesamtschuldner; die Anzeigepflicht nach § 30 ErbStG trifft beide.

Section 2801 tax

A tax of 40 per cent on gifts and bequests received from a covered expatriate, imposed on the United States citizen or resident who receives them and not on the person who gives them. There is no time limit: a bequest received decades after the expatriation is within it. The annual exclusion is 19,000 dollars for 2025 and 2026. The final regulations took effect on 14 January 2025, Form 708 now exists in its December 2025 revision, and the first returns, for amounts received in 2025, are due on 15 June 2027.

The practical significance is for families where one member has renounced American citizenship, which is a live question for Americans who have settled permanently in Germany. Renunciation solves the renouncer’s filing problem and transfers a substantial cost to any American children who later inherit.

Situs

Where an asset is treated as located for tax, which is a legal question and not a geographical one, and which each system answers for itself. For United States estate tax, American real property, tangible property in the United States and shares in American corporations are United States situs; bank deposits and portfolio debt generally are not, and shares in a foreign corporation are not, whatever the company owns.

Germany uses a different list entirely, in section 121 of the Valuation Act, which includes German real estate, German business assets and shareholdings of at least 10 per cent in German companies, and excludes German bank accounts and portfolio securities. The two lists do not mirror one another, and an asset can be situs property in both countries or in neither. Where it is in both, relief depends on the treaty, and where the treaty does not reach it, section 21 ErbStG gives a credit only for foreign tax on assets Germany itself regards as foreign property.

Steuerklassen (German tax classes)

German inheritance and gift tax fixes both the allowance and the rate by the relationship between the transferor and the acquirer. Class I covers spouses and registered partners, children and stepchildren and their descendants, and parents and grandparents inheriting on death, with rates from 7 per cent to 30 per cent. Class II covers siblings, nephews and nieces, step-parents, in-laws, a divorced spouse, and parents receiving a gift, with rates from 15 per cent to 43 per cent. Class III covers everyone else, at 30 per cent up to 6,000,000 euros and 50 per cent above.

Two points catch American families. Parents move between classes according to whether they inherit or receive a gift. And an unmarried partner, however long the relationship, is in class III with a 20,000 euro allowance and a 30 per cent starting rate, which is the harshest treatment in the system and is entirely avoidable by marriage or by structuring the transfer differently.

Zur Steuerklasse I gehören nach § 15 ErbStG Ehegatten und Lebenspartner, Kinder und Stiefkinder und deren Abkömmlinge sowie Eltern und Voreltern beim Erwerb von Todes wegen; zur Steuerklasse II Eltern und Voreltern bei Schenkungen, Geschwister, Nichten und Neffen, Stiefeltern, Schwiegerkinder und Schwiegereltern sowie der geschiedene Ehegatte; zur Steuerklasse III alle übrigen Erwerber. Nichteheliche Lebensgefährten fallen in die Steuerklasse III mit einem Freibetrag von 20.000 Euro und einem Eingangssatz von 30 Prozent.

Ten-year rules

Several rules of ten years operate in this field and they are unrelated. German personal allowances renew every ten years under section 14 ErbStG, so a programme of gifts spaced a decade apart multiplies the exemption. Gifts are added back to a compulsory share for ten years under section 2325 of the Civil Code, on a sliding scale. Gains on privately held German real estate escape German income tax after ten years under section 23 EStG. Article 4(3) of the estate tax treaty deems a person who was a national of one country and not of the other, and who had been domiciled in the other for less than ten years, to have remained domiciled in the country of nationality, which protects the estate of an American who dies within ten years of moving to Germany and exposes a German national who emigrates to the United States for ten years rather than the five suggested by section 2 ErbStG; it applies to single nationals and not to dual citizens. And Article 1(4)(b) of the income tax treaty preserves American taxation of former citizens and long-term residents for ten years.

The one that most often decides a case is the treaty domicile rule, and it is worth noting that it protects the decedent’s estate without protecting a German-resident heir, whom Germany may still tax under Article 11(1)(b) of the same treaty. See the estates of American citizens who lived in Germany for less than ten years.

Full treatment: The Estates of American Citizens Who Lived in Germany for Less Than Ten Years Are Not Subject to German Inheritance Tax →

Übergabevertrag

The German lifetime handover: a notarial contract by which a farm, a business or a house passes to the next generation during the transferor’s life, against reserved rights, a usufruct, a right of residence, maintenance and care, and usually against a compulsory share waiver by the other children and rights to take the property back if things go wrong. It is the central instrument of German succession planning and has no American counterpart; the nearest American equivalents produce quite different tax results on both sides.

Der Übergabevertrag überträgt Vermögen im Wege der vorweggenommenen Erbfolge gegen Versorgungsleistungen, Nießbrauch oder Wohnrecht und regelmäßig gegen Pflichtteilsverzichte der weichenden Geschwister. Er bedarf bei Grundbesitz der notariellen Beurkundung. Die vorbehaltenen Rechte mindern nach dem Bewertungsgesetz die schenkungsteuerliche Bereicherung; vertragliche Rückforderungsrechte sichern den Übergeber ab.

Unbeschränkte Steuerpflicht (unlimited German tax liability)

For German inheritance and gift tax, section 2(1) number 1 ErbStG imposes tax on the whole worldwide acquisition where the decedent at death, or the donor when the gift is made, or the acquirer when the tax arises, is an Inländer. That means a person with a dwelling or habitual abode in Germany, a German national who has not been permanently abroad for more than five years, a German national in German public service abroad, or a corporation managed or seated in Germany.

The feature that surprises Americans is the third limb: the acquirer’s residence alone is enough. A wholly American estate passing to a beneficiary who happens to live in Germany is within German inheritance tax on the whole of that beneficiary’s share. For income tax the parallel concept is in section 1 EStG, triggered by residence or habitual abode under sections 8 and 9 of the Fiscal Code, and it produces liability on worldwide income.

Unbeschränkte Erbschaftsteuerpflicht besteht nach § 2 Abs. 1 Nr. 1 ErbStG für den gesamten Vermögensanfall, wenn der Erblasser zur Zeit des Todes, der Schenker zur Zeit der Ausführung oder der Erwerber zur Zeit der Entstehung der Steuer Inländer ist. Inländer sind natürliche Personen mit Wohnsitz oder gewöhnlichem Aufenthalt im Inland sowie deutsche Staatsangehörige, die sich nicht länger als fünf Jahre dauernd im Ausland aufgehalten haben. Für die Einkommensteuer folgt die unbeschränkte Steuerpflicht aus § 1 EStG.

United States situs assets

The assets that bring a non-domiciled decedent within United States estate tax: American real property, tangible personal property located in the United States, and shares in United States corporations, wherever the certificates are held and whatever broker holds them. Bank deposits not connected with a United States trade or business, portfolio debt obligations, and the proceeds of life insurance on the decedent’s life are outside. Shares in a foreign corporation are outside, whatever that corporation owns.

The classification is by the asset, not by where it is administered, so a German resident who holds Apple shares through a German bank holds United States situs property, and a German resident who holds a German company that owns a house in Florida does not. Against that base the exclusion is 60,000 dollars unless the treaty’s pro rata figure is claimed, and the top rate is 40 per cent, which is why a modest American share portfolio in German hands is one of the most commonly overlooked exposures in this field.

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V

Verschonungsabschlag

The exemption granted to qualifying German business property: 85 per cent as of right, or 100 per cent by irrevocable election, subject to holding periods of five or seven years and to payroll tests. Above 26 million euros per acquirer it either melts away on a sliding scale or is replaced by a means test under which the tax is remitted only so far as it cannot be paid out of half the acquirer’s other assets. See Betriebsvermögen.

Der Verschonungsabschlag beträgt nach § 13a Abs. 1 ErbStG 85 Prozent, bei Ausübung der Option nach § 13a Abs. 10 ErbStG 100 Prozent des begünstigten Vermögens. Er setzt Behaltensfristen von fünf beziehungsweise sieben Jahren und die Einhaltung der Mindestlohnsumme voraus. Oberhalb von 26 Millionen Euro je Erwerber greifen das Abschmelzmodell des § 13c ErbStG oder die Verschonungsbedarfsprüfung des § 28a ErbStG.

Versorgungsfreibetrag

A further German allowance, given in addition to the personal allowance, to a surviving spouse and to children. The spouse’s is 256,000 euros. A child’s depends on age at the death: 52,000 euros up to five years, 41,000 euros to ten, 30,700 euros to fifteen, 20,500 euros to twenty, and 10,300 euros to the completion of the twenty-seventh year.

It is reduced by the capitalised value of survivor’s pension entitlements that are not themselves subject to inheritance tax, which in many German cases removes it entirely. For an American family whose pension provision is in American retirement accounts rather than a German statutory or occupational pension, the reduction bites less often, because inherited account balances are themselves subject to inheritance tax. United States social security survivor benefits, which arise by law and are not subject to inheritance tax, can reduce it in the same way as a German statutory pension, and whether survivor benefits from a 401(k) plan are treated like non-taxable employment-related benefits is undecided. It is worth checking rather than assuming.

Der Versorgungsfreibetrag nach § 17 ErbStG beträgt für den überlebenden Ehegatten 256.000 Euro und für Kinder je nach Alter beim Erbfall zwischen 52.000 Euro bis zum vollendeten fünften Lebensjahr und 10.300 Euro bis zur Vollendung des 27. Lebensjahres. Er wird um den Kapitalwert nicht der Erbschaftsteuer unterliegender Versorgungsbezüge gekürzt, was ihn bei deutschen Hinterbliebenenrenten häufig aufzehrt. Bei überwiegend amerikanischer Altersversorgung bleibt er häufiger erhalten; amerikanische Hinterbliebenenleistungen der Social Security können ihn jedoch ebenso kürzen wie eine deutsche gesetzliche Rente.

Verwaltungsvermögen

Administrative assets: the categories excluded from German business property relief, essentially third party letting, shareholdings of 25 per cent or less, art and securities held as investments, and financial assets above 15 per cent of the value of the business. Up to 10 per cent of the net value is nevertheless treated as qualifying. Where administrative assets reach 90 per cent of the value, relief is denied altogether, which catches the family holding company that is in substance a securities portfolio.

Der Katalog des § 13b Abs. 4 ErbStG erfasst insbesondere an Dritte überlassene Grundstücke, Beteiligungen von 25 Prozent oder weniger, Kunstgegenstände und Wertpapiere sowie Finanzmittel, soweit sie 15 Prozent des gemeinen Werts übersteigen. Unschädliches Verwaltungsvermögen bis zu 10 Prozent des Nettowerts gilt nach § 13b Abs. 7 ErbStG als begünstigt. Erreicht das Verwaltungsvermögen 90 Prozent, ist die Verschonung nach § 13b Abs. 2 Satz 2 ErbStG insgesamt ausgeschlossen.

Vorweggenommene Erbfolge

Anticipated succession: transferring assets to the next generation during life rather than at death. In Germany it is the central planning technique, because the allowances renew every ten years, so a couple with two children can move 1.6 million euros each decade free of tax, and because it starts the ten year clock that removes gifts from the compulsory share. Timing matters more than amount. For an American donor the same transfer is measured against an entirely different American system, and the two have to be planned together.

Die vorweggenommene Erbfolge überträgt Vermögen zu Lebzeiten, regelmäßig gegen Vorbehalt von Nießbrauch, Wohnrecht oder Versorgungsleistungen. Steuerlich nutzt sie die Zehnjahresfrist des § 14 ErbStG, nach deren Ablauf die persönlichen Freibeträge erneut zur Verfügung stehen, und die Abschmelzung des Pflichtteilsergänzungsanspruchs nach § 2325 Abs. 3 BGB. Der Zeitpunkt der Übertragung ist daher wichtiger als ihre Höhe.

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