Have you inherited a property from your grandparents? This inheritance is not only of emotional value but also a financial responsibility, where inheritance tax for grandchildren can quickly become a burden. Learn now how you can reduce your tax burden by up to 30% with the right strategies and an accurate property valuation.
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The topic briefly and concisely
Grandchildren have a personal inheritance tax allowance of €200,000, which increases to €400,000 if the corresponding parent has already passed away.
The standard property valuation by the tax office is often too high; an independent market value appraisal can reduce the tax burden by up to 30%.
The family home used by oneself can be inherited completely tax-free under strict conditions (including 10 years of own use, maximum 200 m² of living space).
Inheriting a property from grandparents is a significant event, but it often carries a substantial tax demand from the tax office. Many grandchildren are surprised by the level of inheritance tax, which is based on the value of the property often estimated by the tax office on a flat-rate basis. This article explains the key factors of inheritance tax for grandchildren when inheriting property, from personal allowances to legal strategies for tax reduction. You'll learn how data-driven property valuation becomes the most important tool to ensure you only pay as much tax as is truly necessary.
Basics of Inheritance Tax for Grandchildren
If you inherit property as a grandchild, this increase in wealth is generally subject to German inheritance tax. The amount of tax depends on two central factors: the degree of kinship to the deceased and the value of the inherited assets. As a grandchild, you belong to the most favourable tax class I, which already secures you a tax rate advantage of at least 8 percentage points compared to distant relatives.
The tax rates in this class are progressive, starting at 7% for assets up to €75,000 above the allowance and rising to 30% for inheritances over €26 million. Your personal allowance is your most important tool for minimising tax. Before analysing the specific amounts, it is important to understand how the value of your property is determined, as this value decides how much of your allowance is utilised.
Allowance for grandchildren: These figures you need to know
The Inheritance and Gift Tax Act (ErbStG) provides specific allowances for grandchildren, which can be used anew every 10 years. As a grandchild, you are generally entitled to a personal allowance of €200,000. This means a property value up to this amount remains completely tax-free for you. Anything above this must be taxed.
However, there is an important exception that doubles your allowance:
€400,000 allowance: This higher amount applies if your parent related to the deceased has already passed away. In this case, you effectively step into your parent's inheritance position, which is recognised with the child allowance.
Many heirs overlook that this allowance applies per grandparent. You can inherit €200,000 tax-free from your grandmother and €200,000 from your grandfather. Thoughtful estate planning, as possible with the Auctoa Estate Manager, can make optimal use of these allowances. A thorough understanding of these amounts is the first step, but the second, decisive step is the correct valuation of the inherited property.
The Property Value: Why the Valuation by the Tax Office Can Be Costly
The tax office determines the value of your inherited property for inheritance tax calculation. For this purpose, it uses standardized methods like the comparative value or cost value method, often without an on-site inspection. These blanket evaluations can exceed the actual market value by 15-20%, as individual features such as renovation backlogs or a poor micro-location are not considered. A value set too high directly leads to a higher tax burden for you.
However, you are not powerless against this estimation. According to § 198 of the Valuation Act (BewG), you can prove a lower value through a qualified market value appraisal by an expert. Such a report can often reduce your tax burden by thousands of euros. A precise property valuation in the case of inheritance is therefore not merely a formality but an active tool for managing your financial burden. With Auctoa's ImmoGPT, you can receive an initial data-based assessment and understand whether a counter-expertise is worthwhile for you. Next, we will look at a special regulation that can even make a property completely tax-free.
Special case family home: Under these conditions, grandchildren inherit tax-free
A significant exception to inheritance tax liability is the regulation concerning the so-called family home. Under strict conditions, you as a grandchild can inherit the property completely tax-free, regardless of your personal allowance. Several conditions must be met, which the tax office scrutinizes:
Residence of the deceased: Your grandparents must have lived in the property themselves until their death.
Prompt move-in: After inheritance, you must move into the property immediately, usually within six months, and make it your primary residence.
Ten-year holding period: You are required to live in the property yourself for at least 10 years. A sale, rental, or prolonged vacancy within this period will retroactively result in the loss of the tax exemption.
Area limitation: The tax exemption for grandchildren is limited to a living area of 200 square metres. If the living area exceeds this limit, the portion above will be taxed proportionately.
This option requires long-term life planning and is not feasible for every heir. If the conditions for the family home are not met, there are still effective strategies to reduce the tax burden.
Actively reduce tax burden: 4 effective strategies for grandchildren
In addition to the correct property valuation and review of the family home, there are further strategies to reduce inheritance tax for grandchildren when inheriting property. Forward planning can significantly minimise the financial burden. Here are four proven approaches:
Utilise lifetime gifts: Your grandparents can gift you assets worth your tax-free allowance (€200,000) every 10 years without incurring taxes. With timely planning, property can be gradually transferred in this way without attracting inheritance tax.
Register a usufruct right: In the case of a gift, grandparents can secure lifelong residence or usufruct rights. This significantly reduces the taxable value of the property, as it is deducted from the market value.
Valuation discount for rented properties: If the inheritance involves a rented residential property, the tax office grants a 10% flat valuation discount on the market value. This directly reduces the tax assessment basis.
Apply for a tax deferral: If you cannot immediately pay the assessed tax without having to sell the property, a deferral of the tax for up to ten years can be applied for. This provides financial flexibility.
The combination of these strategies, tailored to your personal situation, offers the greatest potential for tax optimisation. Professional advice helps to make the most of complex regulations and avoid pitfalls.
Conclusion: Proactive action secures your real estate inheritance
The inheritance tax for grandchildren poses significant financial risks in terms of property, but these can be managed through knowledge and proactive action. The key is to make full use of the allowances of €200,000 or €400,000 and to critically question the valuation by the tax office. An independent, precise market value assessment is often the most effective lever to avoid an unjustly high tax burden. Whether through using the family home regulation or through strategic gifts – you have the ability to protect the value of your inheritance. Act informed to preserve your property inheritance for what it should be: a gain, not a burden.
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Additional useful links
Sparkasse offers a guide on inheritance tax for families, including information on heirs and inheritance.
Finanzamt NRW provides information about tax obligations for inheritance or gifts.
FAQ
What tax-free allowance applies if I inherit from both grandparents?
The personal allowances apply per acquisition from one person. You can inherit assets up to €200,000 from your grandmother and also up to €200,000 from your grandfather tax-free. The allowances are not combined.
What counts as 'immediate' move-in to the family home?
The jurisprudence interprets 'without delay' as a period of about six months after the inheritance. Within this time, you should have demonstrably moved your main residence to the inherited property to secure the tax exemption.
Does the tax allowance of €400,000 also apply to a gift to me as a grandchild?
Yes, the increased allowance of €400,000 for grandchildren whose parent has already passed away applies to both inheritances and gifts.
Do I need to proactively report an inheritance to the tax office?
Yes, any acquisition subject to inheritance tax must be reported in writing to the responsible tax office within three months of becoming aware of the inheritance. Notarial wills are often reported automatically, but to be on the safe side, you should take action yourself.
Can I submit an appraisal after the tax assessment?
Yes, you can appeal against the property value assessment notice as well as against the final inheritance tax assessment notice. A qualified expert opinion is the strongest argument to achieve a revaluation and thus a correction of the tax.
What is the difference between inheritance tax and gift tax for grandchildren?
The allowances and tax rates are identical for grandchildren. The strategic advantage of gifting is that the allowances can be fully utilised again every ten years, allowing for the tax-free transfer of large assets over time.
