Inheritance Manager
Real Estate Legal Information
Selling an inherited property below value to relatives
Have you inherited a property and wish to keep it within the family? Selling below market value might seem like a good solution, but it carries tax risks that could cost thousands of euros annually. This guide shows you how to make the sale legally sound and avoid costly mistakes.
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A sale of an inherited property to relatives below market value is treated by the tax office as a 'mixed gift', where the difference from the market value may be subject to tax.
Personal gift tax allowances (e.g., €400,000 for children) can significantly reduce or completely avoid the tax burden, and can be used anew every 10 years.
A professional appraisal of market value is essential to reliably demonstrate the value to the tax office and avoid conflicts with co-heirs.
The desire to sell an inherited property to close relatives at a friendly price is understandable. Emotional reasons often play a role in wanting to keep the family home or a valuable apartment within the family. However, caution is advised: The tax office scrutinizes such transactions closely. A price set too low can quickly be classified as a so-called 'mixed gift', resulting in unexpectedly high gift taxes. This article explains the tax regulations, the crucial role of the market value, and how you can avoid legal and financial disadvantages with a sound strategy. This way, you can ensure that the well-intentioned family sale does not become an expensive boomerang.
If you sell an inherited property to a relative at a price significantly below market value, the tax authorities consider this a mixed donation. Legally, the transaction consists of a remunerated part (the purchase price) and a non-remunerated part (the donation). For example, if the purchase price is more than 20-25% below the actual market value, the authorities assume an intention to donate. The difference between the paid price and the full market value then becomes subject to gift tax. This regulation is intended to prevent the circumvention of gift tax through a symbolic purchase price. Therefore, a thorough understanding of the tax assessment principles is essential to strategically plan the next step – the utilisation of allowances.
The good news is that legislators provide personal allowances for gifts, which depend on the degree of kinship. These allowances can be claimed anew every 10 years, allowing for staggered asset transfers. Forward planning can save thousands of euros in taxes here.
Here is an overview of the key allowances according to § 16 ErbStG:
Spouses & registered civil partners: 500,000 euros
Children & stepchildren: 400,000 euros
Grandchildren: 200,000 euros (400,000 euros if their parents are already deceased)
Parents, grandparents, siblings, nephews/nieces: 20,000 euros
An example: You sell an inherited house with a market value of 600,000 euros for 300,000 euros to your daughter. The difference of 300,000 euros is considered a gift. Since the allowance for children is 400,000 euros, no gift tax is due in this case. It is important to know the market value of the property for the tax office precisely, as this value is the basis for all calculations.
The exact market value is the crucial figure when selling to relatives. The tax office uses standardized procedures such as the comparative value, income, or intrinsic value method to determine the value. However, these general assessments can lead to the value being set too high, as individual characteristics like a backlog of renovations often remain unconsidered. If the agreed purchase price significantly deviates from the officially estimated value, the authority can conduct its own examination or request an appraisal. An independent market value appraisal commissioned by you according to § 194 BauGB provides legal certainty here. It documents the realistic market value and is recognized by tax offices as proof. This is not only protection against unexpected tax demands but also a fair foundation to prevent disputes with co-heirs who might feel disadvantaged by a price set too low. Such an appraisal forms the basis for a clean fair division of an inheritance property.
A significant advantage of selling property to close relatives is the potential exemption from property transfer tax. This tax, which ranges from 3.5% to 6.5% of the purchase price depending on the federal state, is waived for direct-line transactions. This means you do not have to pay property transfer tax when selling to the following people:
Your children or stepchildren
Your grandchildren
Your parents or grandparents
Your spouse or registered partner (even after a divorce)
Beware of collateral lines: If you sell the property to siblings, nieces, or nephews, the full property transfer tax will apply, as they are considered collateral line relatives. This rule highlights the importance of carefully examining family relationships for cost planning. The sale of a house to a son is therefore treated differently for tax purposes than selling to a brother. Knowing these details is crucial to leveraging all legal saving opportunities.
Despite the advantages, selling below value to relatives carries risks that go beyond gift tax. A key point is the ten-year speculation period. If you sell an inherited property that was not owner-occupied within this period, income tax is due on the capital gain. This period is transferred to you from the testator. While a low purchase price in a family sale reduces the initial gain, it can disadvantage the buyer if they need to resell the property soon. The low purchase price then results in a very high taxable gain. A notarised contract is mandatory anyway and should precisely record all aspects, such as possible rights of residence or care services, as these also affect the value of the gift. To explore such complex scenarios, a tool like the Auctoa inheritance tax calculator can provide initial pointers.
Selling an inherited property below market value to relatives is an excellent way to keep wealth within the family while saving on taxes. However, success depends on careful and informed planning. The transaction must be understood as a mixed gift, and the resulting tax consequences must be actively managed by using exemptions. A professional market value appraisal is not a cost factor, but an investment in legal certainty and the avoidance of expensive additional claims. It protects you against the tax office and ensures family harmony. With the right strategy, the well-intentioned friendship price becomes a real gain for all involved.
Bundesfinanzministerium offers comprehensive information on inheritance and gift tax.
Bundesfinanzministerium explains the application of regulations for the valuation of real estate for inheritance and gift tax.
Test.de (Stiftung Warentest) provides information on how tax offices determine the market value of property.
Wikipedia offers a comprehensive article on inheritance tax in Germany.
The Bundesnotarkammer provides important information regarding real estate topics.
The Deutsche Notarinstitut publishes an opinion on examination and instruction duties according to the Notarization Act.
Under Gesetze im Internet, you will find the complete legal text of the Inheritance and Gift Tax Act (ErbStG).
The Bundesfinanzministerium offers an excerpt from the Valuation Act (BewG) specifically on undeveloped land.
The Federal Court of Justice (BGH) publishes one of its decisions here.
The Federal Statistical Office (Destatis) provides information on construction prices and the real estate price index.
What is a mixed gift?
A mixed gift occurs when a property is sold at a price significantly below its actual market value. The purchase agreement represents the remunerative part, while the difference up to the market value is considered a gratuitous gift and may have tax implications.
What are the gift tax exemptions for family members?
The exemptions vary greatly: For spouses it is €500,000, for children €400,000, for grandchildren €200,000, and for most other relatives like siblings, nieces or nephews only €20,000. These exemptions can be utilised anew every 10 years.
Why is an appraisal so important?
An appraisal by a certified expert provides an objective and legally secure proof of the true value of your property. It serves as a recognised basis for the tax office to accurately assess the potential gift and protects you from excessive tax demands.
Do I have to pay land transfer tax when selling to my brother?
Yes. Siblings are considered lateral relatives, not in direct line. Therefore, when selling a property to a brother or sister, full land transfer tax applies, and its amount depends on the respective federal state.
What is the speculation period for an inherited property?
The speculation period is 10 years. If you sell an inherited property that the deceased did not occupy continuously within this period, you must tax the gain at your personal income tax rate. The period begins with the original purchase date by the deceased.
How can Auctoa assist me in this process?
Auctoa offers AI-supported, neutral property evaluations that provide you with a quick and data-driven assessment of market value. With our ImmoGPT, you can also clarify initial questions and use our inheritance tax calculator to explore various scenarios for making an informed decision.
