If it is impossible or unreasonable for the heir to use the family home due to health reasons, according to the Federal Fiscal Court (BFH) ruling, the exemption from inheritance tax is not lost.
The family home can be inherited tax-free under certain conditions. Among these conditions is, for example, that the heir immediately uses the family home for residential purposes for the next ten years, explains the law firm MTR Legal.
If the heir moves out of the family home before the ten-year period expires, inheritance tax may become due. However, if it becomes impossible or unreasonable for the heir to use the home due to health reasons, they do not lose their entitlement to the inheritance tax exemption despite moving out during the ten-year period. This was decided by the Federal Fiscal Court on December 1, 2021 (Case No.: II R 18/20).
In the case being addressed, the plaintiff inherited the family home from her father and lived in the single-family house herself. However, after seven years she moved out, and the house was demolished. She stated that due to her health condition, she was barely able to move around in the house and could no longer live there without external help.
The tax office and the tax court held the view that the plaintiff had lost her entitlement to the inheritance tax exemption due to her premature move. Since the plaintiff could have received external help and continued to live in the house, there was no compelling reason for her move, ruled the tax court.
However, the BFH saw it differently, overturned the judgment, and referred the case back to the tax court. According to § 13 para. 1 no. 4c of the Inheritance and Gift Tax Act, a condition for the inheritance tax exemption is that the heir uses the family home themselves for residential purposes for ten years. Exceptions are possible if the heir is hindered from self-use for residential purposes due to compelling reasons. ‘Compelling’ does not only mean the impossibility of self-use, the BFH clarified. Compelling reasons also exist if further self-use is unreasonable. The tax court must now examine this regarding the plaintiff’s health condition.
Attorneys experienced in tax law can provide advice.
