Does Germany have an Inheritance Tax?
Yes, Germany levies inheritance tax (Erbschaftsteuer) based on the German Inheritance and Gift Tax Act (Erbschafts- und Schenkungssteuergesetz, ErbStG).
What is the fundamental difference between UK Inheritance tax and German inheritance tax?
Germany taxes each heir and beneficiary individually. In contrast, UK inheritance tax is payable by the estate as an entity. German inheritance tax rates and exemptions vary depending on the relationship to the decedent and the amount inherited. The beneficiary must pay the German inheritance tax and not the estate.
When does Germany tax UK assets?
Germany taxes the worldwide estate, including UK assets, if either the beneficiary or the deceased was a German tax resident (Inländer) at relevant times.
Is a UK national who owns property in Germany a German tax resident for inheritance tax purposes?
An individual is a (deemed) German tax resident for inheritance and gift tax purposes if
- they have either a residence (§ 8 AO) or a habitual abode (§ 9 AO) in Germany.
- they are (also) a German citizen who has not lived abroad for a continuous time of 5 years without having a residence in Germany (extended unlimited inheritance tax liability).
- they are (also) a German citizen employed by a German authority abroad (e.g., German Embassy).
Is there a Double Taxation Agreement between Germany and the UK
Yes, there is a Double Taxation Agreement between Germany and the UK. However, it only covers income taxes and not inheritance and gift taxation.
Is German inheritance tax charged on assets located in Germany if the beneficiaries and the deceased were UK nationals or UK residents?
UK citizenship does not prevent Germany from taxing the entire inheritance regardless of whether the decedent and/or beneficiaries are German tax residents. Furthermore, Germany may always tax domestic property (Inlandsvermögen).
What are the inheritance tax rates in Germany?
German inheritance tax rates range from 7 % to 50 %, depending on the relationship to the decedent and the net value of the share of inheritance.
What are the inheritance tax-free allowances in Germany?
German inheritance tax-free allowances range from EUR 20,000 to EUR 500,000, depending on the relationship between the decedent and the beneficiary and the value of the net inheritance.
Does a beneficiary residing in the UK get the full tax-free allowance?
Yes, on the condition that the whole estate is subject to German inheritance tax. If only the German domestic property (Inlandsvermögen) is taxed, the tax-free allowance will only be granted proportionately.
What is the inheritance tax-free allowance for a child of the Decedent?
A child of the decedent inherits EUR 400,000 tax-free.
Is there an exemption for the Family Home?
The family home (Familienheim) of the surviving spouse (or registered same-sex partner) is completely tax exempt if it is located in the European Union or European Economic Area. However, the surviving spouse (with some exceptions) must personally use it as the principal home for another 10 years after death. Children may also benefit from the tax exemption. However, if the living space exceeds 200 square meters, the portion exceeding 200 square meters is subject to inheritance tax.
Is there a spouse's exemption for the inheritance of the surviving Spouse?
As a general rule, Germany taxes the transfer to the surviving spouse, and there is no spouse exemption. However, the spouse benefits from a relatively high tax-free allowance and other exemptions.
What is the tax-free allowance for the surviving spouse?
The tax-free allowance for the surviving spouse is EUR 500,000. Furthermore, if the spouses were married under the German default property regime of community of accrued gains (Zugewinngemeinschaft), the value of the claim for equalization of accrued gains (Zugewinnausgleich) is tax exempt. Finally, an additional tax-free allowance of up to EUR 256,000 is granted to the spouse if they are not entitled to inheritance tax-free pension payments upon the death of the first dying spouse.
Is a transfer to a UK-based trust subject to German Inheritance Tax?
Germany taxes the transfer to an opaque trust (intransparenter trust). Therefore, Germany taxes the transfer of assets into many (family) trusts.
Do I have to report the inheritance in Germany?
In many situations, the beneficiaries (and not the personal representative) are obliged to declare their inheritance to the local inheritance tax office within three months after being aware of the taxable transfer of property upon death. For more information, please check the article German Inheritance Tax: Duty to report an Inheritance from Abroad.
Do I have to file a German inheritance tax return?
The inheritance tax office can request any beneficiary or executor to file a German inheritance tax return (Erbschaftsteuererklärung). Once the request is received, the identified individual must file an inheritance tax return. Generally, the inheritance tax office asks the beneficiary or, if there is an executor (Testamentsvollstrecker), the executor to file the inheritance tax return. For further information on the German inheritance tax return and the tax assessment, please check our article German inheritance tax return: preparation, filing, and tax assessment.
When is the German inheritance tax due?
The tax does not become due before receipt of the Inheritance tax assessment notice (Erbschaftsteuerbescheid) by the person who has filed the tax return (e.g., executor or beneficiary). Generally, the inheritance tax is due within one month following receipt of the tax assessment.
Does the UK tax an inheritance in Germany?
UK inheritance tax is not payable on non-UK situs assets received from a person who is not a resident for UK inheritance tax purposes.
Can the German inheritance tax be deferred?
The German tax authorities may defer claims arising from the tax liability in whole or in part if payment on the due date would cause considerable hardship for the debtor and the claim does not appear to be at risk as a result of the deferral. Interest shall be charged for the duration of any deferral granted for claims arising from the tax liability. The interest rate is 0,5 % per month. If the inheritance includes let property, the inheritance tax payable on it can be deferred for up to ten years, provided that the beneficiary can only raise the tax by selling this asset; in this case, no interest is payable.
Can the UK inheritance tax be offset against the German inheritance tax?
If the decedent was not a German tax resident (Inländer), the UK inheritance tax on all assets which are not considered German domestic property (Inlandsvermögen) can (with some exceptions) be credited. If the decedent was a German tax-resident (Inländer), only the UK inheritance tax on property and some other tangible property (but not financial assets with a UK bank!) can be offset against the German inheritance tax.
Does the UK credit the German inheritance tax?
The UK does credit any German inheritance tax imposed on German situs assets against the UK Inheritance tax. However, as the UK does not tax German situs assets unless the decedent was a UK resident for inheritance tax purposes, the German inheritance tax can often not be offset against any UK Inheritance tax.
Does the UK recipient of an inheritance from Germany have to report the gift?
A recipient of an inheritance from Germany is not automatically required to report this to HM Revenue & Customs. However, if the inheritance includes taxable income or capital gains, it may this will need to be included in the beneficiary’s income tax return. It is also recommended to report sums of £100,000 or more, as this could trigger scrutiny under anti-money laundering regulations.
