Compelling reasons justifying exemption of family home from estate tax

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Arbeitsrecht-Anwalt-Rechtsanwalt-Kanzlei-MTR Legal Rechtsanwälte

It is possible for a family home to be exempt from estate tax even if several months pass before the heir moves in. In Germany, inheritance laws allow for exceptions if there are overriding circumstances that justify this outcome.

Generally speaking, it is necessary for certain conditions to be fulfilled in order for the family home to be handed down tax-free. If there are compelling reasons for why these conditions cannot be met, an exemption from estate tax is still possible, notes commercial law firm MTR Legal Rechtsanwälte. In instances where the circumstances give rise to legal disputes, an attorney specializing in inheritance cases ought to be consulted.

The conditions for obtaining an exemption from estate tax include that the testator must have been living in the family home up until their passing, that the heir move into said home without delay (within 6 months) and continue to use it as a personal residence for a period of at least ten years. However, there may be overriding circumstances that render it impossible to satisfy these requirements. Should this lead to a legal dispute with the tax authorities, it is advisable to seek out an expert in inheritance law.

This is because it is possible to obtain an exemption from estate tax even if the relevant conditions have not been met, as illustrated by a case adjudicated by Munich’s fiscal court – the Finanzgericht (FG) München – in 2022 (case ref..: 4 K 2183/21). The testator in that case had been living in the family home prior to being forced to move into a nursing home for health reasons. In order to cover the costs of the home, she rented out her apartment on a temporary basis. When she passed away, her daughter became the sole heir to her estate. However, because the rental agreement still had two years left to run, the daughter was not able to move into the family home herself immediately. Consequently, the tax authorities issued an estate tax assessment notice for the family home.

And this was the wrong decision, according to the FG München. Acknowledging that the testator had been reliant on full-time institutional care, the court ruled that there were compelling reasons for why she had no longer been able to personally occupy the family home. And while the daughter had wanted to personally reside in the family home, it was noted that she had been prevented from doing so by the fixed-term rental agreement. The court concluded that she had thus been prevented from occupying the apartment due to overriding circumstances.

The ruling is proof that it is a good idea to consult an attorney who specializes in dealing with inheritance cases if legal disputes crop up. He or she will be best placed to represent the interests of clients vis-à-vis the tax authorities.

MTR Legal Rechtsanwälte advises on all aspects of inheritance law.

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