Advice on German inheritance tax and gift tax with a cross-jurisdiction element with the UK

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)

How does German Inheritance Tax work?

Germany taxes each heir and beneficiary individually, not the estate itself. Tax rates and exemptions vary depending on the relationship to the decedent and the amount inherited. 

When does Germany Tax the worldwide Estate?

Germany taxes the worldwide estate, if either the beneficiary or the deceased is a German tax resident (Inländer) at the relevant time.

Is there a Double Taxation Agreement between Germany and the UK?

There is no Double Taxation Agreement between Germany and the UK in the area of inheritance and gift taxation. 

Is there a German Inheritance Tax on assets in Germany if the beneficiaries and the decedent were UK nationals?

If neither the decedent nor the beneficiary was a German tax resident (Inländer) at the relevant time, Germany taxes the German domestic property (Inlandsvermögen), e.g. land/property in Germany. 

What are the German Inheritance Tax rules for British citizen in Germany? 

With some exceptions (e.g. extended unlimited tax liability for German citizen) the taxation does not depend on the citizenship of the decedent or the beneficiary and foreigners are taxed under the same rules as German citizen. 

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 value of your share in the net inheritance. Further information is available here. 

What are the inheritance tax thresholds in Germany?

German inheritance tax thresholds 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. Further information is available here. 

What is the inheritance tax threshold for a child of the decedent?

A child of the decedent inherits EUR 400,000 tax free. 

Are spouses subject to German inheritance tax?

Yes. The transfer on death to a spouse of the decedent is generally excluded from taxation. However, certain benefits are available. See below. 

What is the inheritance tax threshold for the surviving spouse?

The inheritance tax threshold for the surviving spouse is EUR 500,000. Furthermore, if the spouses were married under the German default property 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 exemption of up to EUR 256,000 is granted to the spouse if he/she is not entitled to inheritance-tax-free pension payments upon the death of the first dying spouse. 

Do gifts decrease the available inheritance tax threshold?

A gift and an inheritance from the same person within 10 years are aggregated and the tax is (re-) calculated based on the aggregated taxable acquisition. Thus, if the decedent made a gift prior to his death to a future beneficiary under his/her will and dies no later than 10 years thereafter, the full inheritance tax threshold may not be available. 

Are transfers to trusts subject to German inheritance tax?

Germany taxes the transfer to a foreign pool of assets with the purpose to bind assets (Vermögensmasse ausländischen Rechts, deren Zweck auf die Bindung von Vermögen gerichtet ist). Many UK and offshore trusts are such "pool of assets". 

Who pays the German inheritance tax?

The beneficiary must pay the German inheritance tax on all transfers received. If there is an executor (Testamentsvollstrecker), the executor will generally pay the tax out of the share of the beneficiary.  

Is there a duty to disclose an inheritance from the UK?

Pursuant to § 30 ErbStG, the beneficiaries are obliged to report the transfer to the local inheritance tax office within 3 months after gaining knowledge of the taxable transfer of property at death. 

Who must file the German inheritance tax return?

Whomever the inheritance tax office asks to file an inheritance tax return (Erbschaftsteuererklärung) 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. 

When is the German inheritance tax due?

he tax becomes due upon receipt of the tax assessment (Erbschaftsteuerbescheid) by the person who has filed the tax return (e.g. executor or beneficiary). Generally, the assessed tax is due within one month after receipt of the tax assessment. 

Is a deed of variation recognized in Germany?

While a deed of variation is recognized as a binding agreement between the parties in Germany, it does not retroactively alter the inheritance tax situation in Germany. Instead, a deed of variation will be considered a gratuitous transfer from the original beneficiary to the new beneficiary, potentially triggering German gift tax.