Have you inherited a property and want 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 will show you how to structure the sale legally and avoid costly mistakes.
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The topic briefly and concisely
The sale of an inherited property to relatives below market value is treated by the tax office as a “mixed gift”, whereby the difference to the market value may be subject to tax.
Personal gift tax allowances (e.g. €400,000 for children) can significantly reduce or entirely avoid tax liabilities and can be used anew every 10 years.
A professional appraisement is essential for legally demonstrating the value to the tax office and avoiding conflicts with co-heirs.
The desire to sell an inherited property to close relatives at a friendly price is understandable. Often, emotional reasons are behind the wish to keep the family home or a valuable apartment within the family. However, caution is advised: The tax office closely scrutinizes such transactions. A purchase price set too low can quickly be classified as a 'mixed gift', leading to unexpectedly high gift taxes. This article explains the tax rules, the crucial role of the market value, and how you can use a sound strategy to avoid legal and financial disadvantages. This ensures that the well-intentioned family sale does not become an expensive boomerang.
The mixed gift: When the tax office examines the price
If you sell an inherited property to a relative at a price significantly below market value, the tax office considers this a mixed gift. Legally, the transaction consists of a remunerated part (the purchase price) and a non-remunerated part (the gift). For example, if the purchase price is more than 20-25% below the actual market value, the authority assumes an intention to give a gift. The difference between the paid price and the full market value then becomes subject to gift tax. This regulation aims to prevent the gift tax from being circumvented through a symbolic purchase price. Therefore, a precise understanding of the tax evaluation principles is essential to strategically plan the next step – the use of tax exemptions.
Strategically Utilize Gift Tax Exemptions
The good news is that the legislator provides personal allowances for gifts, the amount of which depends on the degree of relationship. These allowances can be used again every 10 years, allowing a staggered transfer of wealth. Forward planning can save thousands of euros in taxes here.
Here are the main allowances according to § 16 ErbStG at a glance:
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. As the allowance for children is 400,000 euros, no gift tax is incurred in this case. It is important to know the market value of the property for the tax office exactly, as this value forms the basis for all calculations.
The market value: the linchpin of the transaction
The exact market value is the crucial metric when selling to relatives. The tax office uses standardised methods like the comparative value, income, or intrinsic value method to determine the value. However, these blanket evaluations can sometimes lead to an overestimation because individual characteristics such as a backlog of renovations are often overlooked. If the agreed purchase price significantly deviates from the officially estimated value, the authority may conduct its own review or request an appraisal. An independent market value appraisal commissioned by you in accordance with § 194 BauGB provides legal certainty here. It documents the realistic market value and is recognised by tax offices as evidence. This is not only a safeguard against unexpected tax demands but also a fair basis to prevent disputes with co-heirs who might feel disadvantaged by a low price. Such an appraisal is the foundation for a clean fair distribution of an inherited property.
Land transfer tax: An avoidable cost factor
A significant advantage of selling property to close relatives is the potential exemption from land transfer tax. This tax, which ranges from 3.5% to 6.5% of the purchase price depending on the federal state, is waived for transactions in a direct line. This means you do not have to pay land transfer tax if you sell to the following individuals:
Your children or stepchildren
Your grandchildren
Your parents or grandparents
Your spouse or registered civil partner (even after divorce)
Warning for lateral lines: If you sell the property to siblings, nieces, or nephews, the full land transfer tax applies, as they are considered lateral relatives. This rule emphasizes how important it is to thoroughly assess the kinship relationships for cost planning. The sale of a house to the son is therefore treated differently for tax purposes than the sale to a brother. Knowing these details is crucial to maximize all legal savings opportunities.
Minimising Risks and Pitfalls in Family Sales
Despite the advantages, selling below value to relatives carries risks that go beyond gift tax. A key concern is the 10-year speculation period. If you sell an inherited property that has not been used personally within this period, capital gains tax is due on the sale profit. This period is transferred from the deceased to you. While a low purchase price in a family sale does reduce the initial profit, it can be disadvantageous for the buyer if they need to resell the property shortly. The low acquisition price then leads to a very high taxable profit. A notarised contract is mandatory in any case and should accurately record all aspects, such as any 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 guidance.
Conclusion: Planning is the key to success
Selling an inherited property below 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 allowances. A professional market value appraisal is not a cost factor, but an investment in legal security and avoiding expensive subsequent demands. It protects you from the tax office and ensures family harmony. With the right strategy, the well-intended friendly price becomes a real gain for all parties involved.
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Additional useful links
Bundesfinanzministerium offers comprehensive information on inheritance and gift tax.
Bundesfinanzministerium explains the application of regulations for valuing real estate for inheritance and gift tax purposes.
Test.de (Stiftung Warentest) provides information on how tax offices determine the market value of properties.
Wikipedia offers a comprehensive article on inheritance tax in Germany.
The Bundesnotarkammer provides important information on real estate topics.
The Deutsche Notarinstitut publishes a statement on examination and advisory duties according to the Notarisation Act.
At Gesetze im Internet, you can find the full text of the Inheritance Tax and Gift Tax Act (ErbStG).
The Bundesfinanzministerium provides an excerpt from the Valuation Act (BewG) specifically related to undeveloped land.
The Federal Court of Justice (BGH) publishes one of its decisions here.
The Federal Statistical Office (Destatis) offers information on construction prices and the property price index.
FAQ
What is a mixed donation?
A mixed donation occurs when a property is sold at a price significantly below its actual market value. The sales contract is the part with consideration, while the difference to the market value is regarded as a gratuitous donation and may have tax implications.
What are the gift tax exemptions for family members?
The allowances vary greatly: For spouses, it's €500,000, for children €400,000, for grandchildren €200,000, and for most other relatives like siblings, nieces, or nephews, only €20,000. These allowances can be utilized again every 10 years.
Why is a property valuation report so important?
A market value appraisal by a certified expert provides an objective and legally sound proof of the true value of your property. It serves as a recognised basis for the tax office to accurately assess the amount of any potential gift and protects you from excessive tax demands.
Do I have to pay property transfer tax when selling to my brother?
Yes. Siblings are considered relatives in the collateral line, not in the direct line. Therefore, when selling a property to a brother or sister, the full real estate transfer tax applies, the rate of which 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 was not continuously occupied by the deceased within this period, you must tax the profit 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 provides AI-powered, neutral property assessments that deliver a quick, data-driven estimate of market value. With our ImmoGPT, you can also clarify initial questions and use our inheritance tax calculator to explore different scenarios for making an informed decision.
