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Inheriting Property – What You Need to Know

15. 09. 2017 | Jürgen Kriegisch | Tips & Tricks

Inheriting Property

Real estate accounts for a large share of the 400 billion euros inherited per year across Germany. In addition to their financial worth, there is often a sentimental value attached to inheriting a childhood home or the pre-war building previously owned by beloved grandparents. However, for all the benefits, there are also a number of pitfalls that can make inheriting property a financial and emotional burden. Read on to find out more about the most important issues you need to be aware of when inheriting real estate in Germany.

Calculate the Associated Costs and Review Your Financial Situation

For many, a property inheritance can be a dream come true, albeit under sad circumstances. In an ideal-case scenario, inheriting a plot, house or apartment will add considerable value to your assets – however, unfortunately it can also prove a drain on your finances. German law holds the heirs to the deceased’s estate liable for any outstanding mortgage payments or unpaid taxes. Any refurbishments required to make the property suitable for the new owners’ or future tenants’ needs can also be an expensive business. In many cases, heirs are forced into debt to cover the initial outlay of making a run-down property habitable in accordance with contemporary standards of living. Depending on the degree of kinship to the deceased, there can also be a hefty tax burden attached to a property inheritance.

In cases where the costs associated with inheriting a property are too high, there may be good reasons to disclaim the inheritance. Under German law, this decision needs to be made within a period of six weeks after probate. Alternatively, selling the property may also be an option. In any case, you will need to review your own financial situation before deciding whether or not to accept a property inheritance.

The Taxman’s Share: Making the Most of Exemptions and Allowances

Houses, apartments and plots of land are all subject to inheritance tax, which is calculated on the basis of the property’s current market value. Depending on your tax bracket and degree of kinship to the deceased, you will be entitled to a tax-free allowance that can significantly lessen the burden. As a rule of thumb, the closer you are related to the deceased, the less you’ll have to pay. Under German law, inheritance tax rates are calculated on a progressive scale with three different tax brackets depending on degree of kinship (see tables below).

Widowed spouses are exempt from any inheritance tax on the home they shared with the deceased as long as they continue to live there for at least ten years following their partner’s death. The same exemption also applies to children who live in a property inherited from a parent for at least ten years. In both cases, inheritance tax will become payable if the property is sold or let during that ten-year period.

Tax-free allowance by degree of kinship to the deceased:

Degree of kinshipTax-free allowance
Spouses or civil partners€500,000
Children or stepchildren€400,000
Parents or grandparents€100,000
All others€20,000

Inheritance tax brackets by degree of kinship to the deceased:

Degree of kinshipTax bracket
Spouses, children, stepchildren, grandchildren, great-grandchildren, parents, grandparentsSteuerklasse I
Siblings, nephews/nieces, stepparents, sons/daughters in-law, parents in-law, divorced spousesSteuerklasse II
All othersSteuerklasse III

By law, you are required to notify the competent Finanzamt (local tax authority) of any inheritance even if you are exempt from paying inheritance tax according to applicable regulations. Failure to submit an inheritance tax declaration can result in financial sanctions, including criminal proceedings for tax evasion.

Inheriting Property - Last will

No Last Will: Who Is Entitled to a Share of the Inheritance?

If the deceased has made a legal will, the property in question will automatically go to the legal heirs or beneficiaries. In cases where there is no will, joint ownership goes to the statutory heirs, i.e. the deceased’s relatives. Any statutory heir who has been formally disinherited has the right to apply for a mandatory share, and to have the current market value of the property determined by a court-appointed expert.

Don’t Miss the Two-Year Registration Period

Once probate has been granted, title and ownership to the property pass to the heir or joint heirs. The new owners then have to file a written application with the competent Amtsgericht (district court) for amendment of the property’s land register entry. This is free of charge as long as the application is filed within a period of two years of the previous owner’s death. Amending the records may not be necessary if the new owners are planning to sell the property, however the competent authority should still be notified.

In order to have the land register entry amended for an inherited property, you will need to submit proof of transfer of ownership in the form of a copy of the will or a certificate of inheritance, which can be obtained from the competent appellate court for a fee. In cases of uncertainty or dispute about who is entitled to the inheritance, a probate case may be filed with a civil court.

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