Are you facing the challenge of inheriting a property and worried about a significant tax demand from the tax office? An inherited property is often subject to a considerable inheritance tax, which can reduce the estate by up to 50%. This article presents 7 practical ways to legally minimise your tax burden and take advantage of the key tax benefits when inheriting a property.
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The topic briefly and concisely
Take advantage of personal allowances (e.g., €500,000 for spouses, €400,000 for children) to directly reduce the tax burden.
Check the tax exemption through the family home privilege: If used personally for 10 years, the inheritance tax can be completely eliminated.
Have the market value of the property assessed by an independent appraisal to correct an inflated valuation by the tax office.
Inheriting property is an emotional and financial challenge for most people. During this time, the tax office demands its share, which can be considerable. In fact, depending on the degree of kinship and the value of the property, heirs may face tax rates between 7% and 50%. However, the law provides numerous ways to reduce this burden. A thorough understanding of allowances, valuation rules, and special conditions is crucial for securing the inherited assets as effectively as possible. With the right strategy, you can save thousands of euros and avoid financial bottlenecks. This guide will lead you through the most effective methods of tax optimisation.
Understanding the Basics of Inheritance Tax and Avoiding Pitfalls
The amount of inheritance tax is determined by three key factors: the taxable value of the property, your tax class, and your personal allowance. The tax office often determines the property's value using standardised methods that do not always reflect the actual condition. The closer your relationship to the deceased, the higher your allowance and the lower your tax rate, which can vary between 7% and 50%. A basic understanding of these connections is the first step in avoiding excessive payments. Therefore, make sure to inform yourself precisely about what needs to be considered with an inherited property to avoid missing deadlines. This knowledge forms the basis for all further optimisation strategies.
Utilize personal allowances as the primary lever for tax reduction
The personal allowances are the most important tool for reducing inheritance tax. Spouses and registered partners have an allowance of 500,000 euros, while children have 400,000 euros per parent. Grandchildren can still inherit 200,000 euros tax-free, while for siblings or unrelated heirs, the allowance drops to only 20,000 euros. These allowances can be reused every 10 years for gifts, enabling early planning. If the value of the property is below your allowance, no inheritance tax is due. With our inheritance tax calculator, you can quickly determine your expected tax liability. The strategic use of these amounts is the core of any tax optimisation.
Take advantage of the family home exemption for full tax relief
One of the most effective methods to completely avoid inheritance tax is to utilise the so-called family home privilege according to § 13 ErbStG. If the deceased had lived in the property until their death, spouses or children can inherit it tax-free, provided they move in immediately and establish it as their main residence for at least 10 years. If they sell or rent out the property before this period ends, the tax becomes due retroactively. For children, there is an additional condition: the tax exemption only applies to a living area of up to 200 square metres. Every square metre beyond that must be partially taxed. This regulation represents a considerable financial relief but requires a long-term usage decision. It stands in direct contrast to the option of selling an inherited house, which has other tax implications. The decision to use it for personal purposes should therefore be carefully considered.
Determine the market value precisely through an appraisal and save on taxes
The basis for tax calculation is the market value of the property, which is determined by the tax office. This is often done through standardised comparative value processes, without an employee ever having visited the property. This can lead to an inflated valuation, increasing your tax burden by thousands of euros. However, you have the right to prove a lower, more realistic value through an independent market value appraisal. Such an appraisal takes into account individual characteristics such as building damage, a backlog of renovations, or an unfavourable micro-location, which are often overlooked in the tax office's standard calculations. A market value that is only 10% lower can significantly reduce your tax burden. Therefore, have the market value professionally determined for the tax office to create a fair basis for taxation. A data-driven valuation, as offered by Auctoa, provides you with the necessary foundation for argumentation.
Claim the 10% valuation discount for rented properties
If you inherit a rented residential property, the legislator grants you a valuation discount of 10 percent. This means that for the calculation of inheritance tax, only 90 percent of the market value is used (§ 13d ErbStG). For a property with a market value of 400,000 euros, the tax assessment basis is thus reduced by 40,000 euros to 360,000 euros. This benefit applies exclusively to properties rented for residential purposes and not for commercial real estate. This discount is granted automatically and does not need to be applied for separately. It is a simple but effective way to reduce the tax burden and one of the options to legally avoid or reduce inheritance tax. This regulation often makes the continuation of existing tenancies attractive.
Strategically distribute the tax burden with lifetime gifts
One of the most forward-thinking strategies is the transfer of wealth through lifetime gifts. The personal allowances for gifts are identical to those of inheritance tax and can be fully utilised again every 10 years. For example, a father can transfer a share of property worth 400,000 euros to his daughter tax-free today, and transfer assets of the same value again after 10 years. This enables large real estate assets to be passed on to the next generation tax-free over time. It is important to adhere to the 10-year period; if the donor dies within this timeframe, the gift is offset against the inheritance tax allowance. Early planning of gift tax on real estate is therefore essential. With the Auctoa inheritance manager, you can digitally plan and optimise such scenarios.
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From the value of inherited real estate, you can deduct all estate liabilities and thereby reduce the tax assessment basis. This includes not just the debts of the deceased, such as an existing mortgage on the property. Costs that arise directly as a result of the inheritance are also deductible. For example, you can claim the following items:
Funeral costs (up to 10,300 euros flat without proof)
Costs for the certificate of inheritance and the will
Fees for an executor or estate administrator
Costs for a property appraisal commissioned by you
It may also be possible under certain circumstances to deduct necessary renovation costs as an heir for tax purposes. Therefore, carefully collect all receipts to minimise the taxable inheritance as much as possible. These deductions can significantly influence your final tax burden.
Conclusion: Proactive planning is the key to tax optimisation
Muss ich immer Erbschaftssteuer auf eine Immobilie zahlen?
No, not always. If the value of the property, after deducting liabilities, is below your personal allowance, no inheritance tax is due. Additionally, using it as a family home can lead to a full tax exemption.
Welche Steuerklasse gilt für mich bei der Erbschaftssteuer?
The tax class depends on your degree of relationship. Spouses and children fall under tax class I with the lowest rates. Siblings and nieces/nephews are in tax class II, while unrelated heirs are in tax class III with the highest rates.
Was ist der Unterschied zwischen Verkehrs- und Einheitswert?
The market value (or common value) is the current market value of the property and is the basis for inheritance tax. The standard value is an outdated, lower value that is only used for property tax and no longer plays a role in inheritance tax.
Wie schnell muss ich das Finanzamt über die Erbschaft informieren?
You must inform the relevant tax office of the inheritance in writing and without formality within three months of becoming aware of it. Missing this deadline can be considered tax evasion.
Kann ich die Erbschaftssteuer in Raten zahlen?
Under certain circumstances, deferral of inheritance tax is possible, particularly if immediate payment would require the sale of the inherited property. This must be applied for at the tax office and well justified.
Lohnt sich ein Gutachten auch bei einer kleinen Immobilie?
A valuation can also be worthwhile for smaller properties if the estimated value by the tax office is just above your allowance. Even a slight reduction in market value may be enough to completely avoid the tax liability.
Additional useful links
Wikipedia offers general information on inheritance tax in Germany.
The Bundesfinanzministerium provides official information on inheritance and gift tax.
Haufe provides information on the valuation of real estate for inheritance tax purposes.
FAQ
Do I always have to pay inheritance tax on a property?
No, not always. If the value of the property, after deducting liabilities, is below your personal allowance, no inheritance tax is due. Using it as a family home can also lead to a full tax exemption.
Which tax class applies to me for inheritance tax?
The tax class depends on the degree of kinship. Spouses and children belong to tax class I with the lowest tax rates. Siblings and nieces/nephews fall into tax class II, while non-related heirs are in tax class III with the highest rates.
What is the difference between traffic value and unit value?
The market value (or common value) is the current market value of the property and the basis for inheritance tax. The unit value is an outdated, lower value that is only used for property tax and no longer plays a role in inheritance tax.
How quickly do I need to inform the tax office about the inheritance?
You must inform the responsible tax office of the inheritance in writing, without formalities, within three months of becoming aware of it. If you miss this deadline, it may be considered tax evasion.
Can I pay the inheritance tax in instalments?
Under certain circumstances, it is possible to defer inheritance tax, particularly if immediate payment would necessitate the sale of the inherited property. This must be applied for at the tax office and well justified.
Is a valuation worthwhile even for a small property?
A valuation can also be worthwhile for smaller properties if the value estimated by the tax office is just above your tax allowance. Even a slight reduction in the market value may be enough to completely avoid the tax liability.
