Normally, an increase in assets is accompanied by the payment of taxes. This also applies in the case of inheritance. However, there are tax allowances. As a rule, those who inherit receive an increase in assets. However, heirs are not the only ones to benefit. This is because the tax office receives inheritance tax in many cases when an inheritance is made.
IS INHERITANCE TAX ALWAYS DUE?
No. Heirs only have to pay if the value of the inherited assets exceeds a certain amount. In other words, there are personal allowances. “Spouses do not have to pay inheritance tax up to an amount of 500,000.00 euros”.
Children can receive 400,000.00 euros each from both parents without the taxman intervening. If grandparents bequeath something to their grandchildren, no taxes are due up to an amount of 200,000.00 euros each. For siblings, nieces, nephews and cohabitants, there is also a tax-free amount when inheriting – it is 20,000.00 euros.
WHAT ROLE DOES THE DEGREE OF RELATIONSHIP PLAY?
In principle, the closer the relationship, the lower the tax burden. There are three different tax classes for inheritance tax. In addition to spouses and registered partners, tax class one also includes parents, children and their direct descendants.
If, for example, the value of the acquisition is less than 75,000.00 euros after deduction of the tax-free amount, the lowest tax rate of seven percent applies in tax class one. Depending on how high the assets are, this tax rate increases in seven stages up to 30 percent – but the latter only applies in tax bracket one if the assets exceed 26 million euros.
In tax bracket two – which includes siblings, their children, as well as children-in-law and parents-in-law, and divorced partners – the lowest tax rate is 15 percent. This increases to 43 percent depending on the size of the estate.
In tax bracket three – where the lowest tax rate is 30 percent and increases to 50 percent depending on the value of the assets – are all other persons; for example, friends, life partners or extended relatives.
DOES THE INHERITANCE TAX ALLOW EXCEPTIONS?
Spouses and children or grandchildren inherit household goods worth up to 41,000.00 euros tax-free. The household effects themselves include not only home furnishings and crockery, but also books and the car, for example. For works of art and collections, there is a further tax-free allowance of 12,000.00 euros if the heir belongs to tax class one. Who can prove for example with a diary to have cared for the parents, has again an additional tax-free allowance of 20,000.00 euros.
For the so-called inheritance costs, heirs can deduct a lump sum of 10,300.00 euros from the inheritance tax. They do not have to provide the tax authorities with proof that the costs were actually incurred. Inheritance costs include, for example, costs for burial and estate settlement, grave maintenance or for litigation in the event of a court dispute over the inheritance. If necessary, higher costs can also be deducted against proof.
DO HEIRS HAVE TO PAY INHERITANCE TAX ON INHERITED REAL ESTATE?
Not necessarily. If they use the property in question themselves and do not sell, rent or lease it for ten years, no taxes are due for you. However, only inheriting spouses or registered partners benefit from this to the full extent. If children inherit the property, the tax exemption is limited to a living area of 200 square meters. The heirs must then pay tax on the share exceeding 200 square meters.
WHAT DEADLINES APPLY TO INHERITANCE TAX?
Anyone who has inherited must notify the tax office immediately. This must be done within three months of the decedent’s date of death. The tax authorities will then take action on their own initiative if necessary – namely if the assets exceed the relevant tax-free amount and taxes are therefore due.
In such a case, the tax office will ask the beneficiaries to file an inheritance tax return. As soon as the tax office has processed this, it sends the heir a tax assessment by mail. The inheritance tax is only due on the date specified in the notice.
HOW CAN YOU SAVE ON INHERITANCE TAX?
This is possible by making gifts during your lifetime. In the case of such gifts, the tax allowances can be used anew every ten years. An example: A mother made a gift worth 400,000.00 euros to her son in 2005. The son also received the same amount from his father. Taxes are therefore not due.
Ten years later, the father and mother can each bequeath 400,000.00 euros to the son again without incurring taxes. This means that the earlier the assets are passed on, the greater the probability that the beneficiaries will ultimately not have to pay any taxes.
