The inheritance tax exemption for the family home is not forfeited if it is unreasonable for the heir to use the property themselves. This was decided by the BFH in a judgment dated 1.12.2021 (Ref.: II R 18/20).
The family home can be inherited tax-free if certain conditions are met. This includes, among other things, that the heir uses the inherited family home for residential purposes themselves for at least ten years, explains the economic law firm MTR Rechtsanwälte. If the heir moves out during this ten-year period, inheritance tax becomes retroactively due if the heir has no compelling reason for moving out.
Such a compelling reason may not only exist if it is impossible for the heir to use the family home, but also if it is no longer reasonable for them, the Federal Fiscal Court has now clarified.
In the underlying case, the plaintiff had inherited the family home from her father and lived there. However, after seven years she moved out and the house was demolished. She argued to the tax office that due to her health condition, she could hardly move around the house and therefore could no longer live there without external help. Nonetheless, the tax office demanded the inheritance tax. The competent tax court confirmed the claim: There was no compelling reason for the move, as the plaintiff could have made use of outside assistance. Therefore, the exemption from inheritance tax was forfeited.
However, the Federal Fiscal Court saw this differently, overturned the judgment, and referred the case back to the tax court. The inheritance tax exemption requires, according to § 13 Para. 1 No. 4c of the Inheritance and Gift Tax Act, that the heir uses the inherited family home themselves for ten years, unless they are prevented from doing so for “compelling reasons.” Compelling not only includes the impossibility but also the unreasonableness of self-use of the family home, the BFH clarified.
Purely economic considerations are not sufficient for unreasonableness. However, it is different if the heir needs such significant help for further use of the family home for health reasons that independent household management can no longer be said, according to the BFH. The tax court must now verify this.
Experienced lawyers in inheritance tax law provide advice.
