An inherited property presents you with complex questions and quick decisions. This guide offers you clear decision-making assistance for dealing with estate properties, so you can avoid financial pitfalls and fully realise the potential of your inheritance.
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The topic briefly and concisely
An objective valuation is the first and most important step to optimise inheritance tax and avoid conflicts among heirs.
Selling an inherited property is often the simplest solution for heirs to create liquidity and to fairly distribute the proceeds.
Letting properties can secure long-term income, but requires careful calculation of costs, maintenance, and administrative effort.
Are you facing the challenge of deciding on the future of an inherited property? Annually, properties worth over 100 billion euros are inherited in Germany, yet many heirs feel overwhelmed by the decisions they need to make. Whether alone or as part of a community of heirs, the question is often: sell, rent, or use it yourself? Each option has significant financial and personal consequences. This article serves as your strategic decision-making aid for managing inherited properties. We analyse the critical factors – from property valuation and tax obligations to cost-benefit calculations – and provide you with data-driven tools to make the right choice for your situation.
The foundation of every decision: An objective value assessment
The first and most important step in handling an estate property is determining its current market value. Without an accurate, neutral assessment, you are operating blindly. The tax office often uses standard comparison values to calculate inheritance tax, which do not take into account the actual condition and potential defects of the property. A professional appraisal can save real money by demonstrating a lower, more realistic value, potentially reducing your tax burden by thousands of euros.
The costs for such a market value appraisal start at around 2,790 euros and are tax-deductible. This investment not only protects against an excessive tax demand but also establishes a fair basis for all subsequent steps. In particular, in communities of heirs, an independent appraisal prevents disputes over value and possible payout amounts. If you need a quick, data-driven assessment, an AI-supported valuation like the one from Auctoa can provide an initial orientation in a few minutes. With a clear value basis, you can set the course for the next phase: the analysis of various usage options.
Selling: Quick liquidity and clear conditions
Selling an inherited property is often the most pragmatic solution, especially for communities of heirs. When multiple heirs have differing interests, selling allows for a clear division of the proceeds according to their respective inheritance shares. This avoids complex and often emotional negotiations over who takes over the property and compensates the others. Selling is also advisable if the property is far from one's own place of residence or in an area with decreasing property prices.
However, you must carefully examine the tax conditions. If the original purchase of the property by the deceased was less than ten years ago, capital gains tax may be due on the sale profit. An exception exists if the deceased solely occupied the property in the year of inheritance and the two preceding years. The decision to sell should therefore always be based on a solid sales checklist and a precise calculation of potential taxes. Before you sell, you must also be registered as the new owner in the land register, for which a certificate of inheritance is usually required, and applying for this can take several weeks.
Renting: Long-term Income versus Administrative Effort
Renting out the property and using it as an investment can be an attractive option for a steady source of income. This is particularly advisable if the property is in a sought-after location with rising rental prices and is in good condition. For rented residential properties, the inheritance tax value is also set at only 90 percent, which means a tax benefit of 10 percent.
However, there are significant responsibilities and costs. As a landlord, you are responsible for maintenance and must set aside reserves for future repairs. The administrative burden for finding tenants, calculating additional expenses, and general care should not be underestimated, especially if you live far away. A precise calculation is essential:
Ongoing costs (property tax, insurance, administration)
Maintenance reserves (approx. 1-2% of the property's value per year)
Potential rental losses
Marketing costs for tenant changes
Letting is only worthwhile if the expected rental income yields a positive return after deducting all costs. A comparison calculator for sale or rental can provide clarity here. The decision to rent is a long-term entrepreneurial commitment that requires careful consideration of refurbishment requirements.
The Cost Factor of Renovation Needs: When an Investment is Worthwhile
Inherited properties often have significant renovation backlogs, ranging from outdated heating systems to inadequate insulation. Under the Building Energy Act (GEG), there is even a mandatory renovation requirement for new owners in certain areas, which must be implemented within two years of the ownership transfer. These measures aim to reduce CO2 emissions, which account for over 30 percent of total emissions in Germany's building sector.
The costs of renovation can be substantial and must be carefully calculated. An investment is only worthwhile if the increase in value achieved exceeds the expenses. Minor, decorative renovations can already significantly enhance the first impression and thus the selling price. For larger measures, you should seek expert advice. Many heirs are faced with economic difficulties due to high renovation costs and inheritance tax, often making the sale the only sensible alternative. Before deciding, you should thoroughly assess the condition of the property. A detailed renovation plan is essential to realistically assess the financial burden and set the course for tax considerations.
Inheritance Tax: Make Optimal Use of Deadlines and Allowances
No matter how you decide, the tax office is always involved. You are required to report an inheritance to the relevant tax office within three months of becoming aware of it. The tax office may then ask you to submit an inheritance tax return and will set a deadline of at least one month for this. The amount of tax depends on the value of the property and your relationship to the deceased. The allowances are a key factor in this:
Spouse and registered civil partners: 500,000 Euros
Children and stepchildren: 400,000 Euros
Grandchildren: 200,000 Euros
Siblings, nieces/nephews and other heirs: 20,000 Euros
These allowances can be used again every ten years, making lifetime gifts an important tool in estate planning. If you, as a child, move into the inherited parental home and live in it yourself for at least ten years, the inheritance can be completely tax-free up to a living area of 200 square meters. A professional valuation is also crucial here to determine the tax liability correctly. These tax aspects are particularly significant in a community of heirs, where different allowances can lead to complex calculations.
Special Case of an Heirs' Community: Decide Together or Resolve Professionally
An inheritance community automatically arises when there are several heirs and no will specifies otherwise. In this community, all decisions, especially those regarding the sale or rental of a property, must generally be unanimous. This has significant potential for conflict, as the financial situations and personal wishes of the co-heirs often differ greatly. If just one heir blocks a decision, it comes to a standstill, costing everyone time and money.
There are several ways to resolve such a blockade. The co-heirs can attempt to take over the share of the blocking heir and compensate them. Alternatively, any co-heir can sell their entire inheritance share (not just the share of the property) to a third party. As a last resort, there's the option of a division auction, a public auction of the property. However, this often results in proceeds well below market value and should thus be avoided. Early, open communication and obtaining advice for inheritance communities is the best way to find a mutually beneficial solution. A clear strategy is the key to success.
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Managing an estate property is a challenging task requiring careful consideration. There is no one-size-fits-all solution; the right decision depends on your personal situation, the property's characteristics, and the objectives of the heirs' community. The process always begins with an objective appraisal, which serves as the foundation for all further considerations. Analyze the options of selling, renting, and self-use based on clear metrics, and always take into account renovation needs and tax implications. Use digital tools like the ImmoGPT Chat to quickly resolve initial questions and receive data-based recommendations. An informed decision not only protects your assets but also secures family harmony.
Additional useful links
Statistisches Bundesamt provides information on construction prices and the property price index in Germany.
Statistisches Bundesamt offers tables on house prices and land prices in Germany.
Statistisches Bundesamt delivers information on the tenant ratio in Germany.
Statista offers statistics on the ownership structure of rental apartments in Germany.
Institut der deutschen Wirtschaft Köln publishes the Landlord Report 2024.
Bundesfinanzministerium provides information on inheritance and gift tax.
Deutscher Mieterbund provides figures and facts.
FAQ
Do I always need a certificate of inheritance for an inherited property?
Not always. If there is a notarised will or an inheritance contract that names you as an heir, this is often sufficient for you to be registered in the land register. However, if there is only a handwritten will or if the statutory inheritance rules apply, the land registry office usually requires a certificate of inheritance as proof.
What is the difference between inheritance tax and capital gains tax?
Inheritance tax is levied on the assets you inherit. Its amount depends on the value of the inheritance and your degree of kinship. Capital gains tax is additionally incurred if you sell the inherited property at a profit and less than ten years have passed between the original purchase by the testator and the sale.
Who bears the ongoing costs of the property until the decision is made?
From the time of the inheritance, the community of heirs is responsible for all ongoing costs of the property. These include property tax, insurance, heating, electricity, and water. These costs must be borne from the estate or jointly by the heirs until a decision is made about the future of the property.
Can I easily sell my share in an inheritance community?
Yes, you can sell your entire inheritance share (your portion of the entire community of heirs), but not just your share of the individual property. The buyer then takes your place with all rights and obligations in the community of heirs. The other co-heirs have a right of first refusal.
What is a partition auction and is it advisable?
The partition auction is a public auction of the property that can be requested by any co-heir to dissolve a blocked community of heirs. It is generally not recommended, as the proceeds achieved are often 15-30% below the free market value and additional court costs are incurred.
How can an AI property valuation help me?
An AI-powered property valuation, as offered by Auctoa, provides a data-driven and objective assessment of the market value in no time. This serves as a quick, cost-effective decision-making aid to assess the property's potential, calculate inheritance tax in advance, and establish a basis for negotiation in discussions within the heir community.
