If the heir is unable or unreasonably expected to use the family home for health reasons, he does not lose the exemption from inheritance tax according to the ruling of the BFH.
The family home can be inherited tax-free under certain conditions. These conditions include, among others, that the heir uses the family home immediately and for the next ten years for residential purposes, explains the law firm MTR Rechtsanwälte.
If the heir moves out of the family home before the end of the ten years, inheritance tax may become due. However, if it becomes impossible or unreasonable for the heir to use the home for health reasons, he does not lose his entitlement to the inheritance tax exemption despite moving out during the ten-year period. The Federal Fiscal Court ruled on this on December 1, 2021 (Ref.: II R 18/20).
In the underlying case, 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. The plaintiff stated as the reason for her move that due to her health condition, she could hardly move around the house and could no longer live there without outside help.
The tax office and finance court were of the opinion that the plaintiff had lost her entitlement to exemption from inheritance tax by moving out prematurely. Since the plaintiff could have used outside help to continue living in the house, there was no compelling reason for her to move out, the finance court ruled.
The BFH saw it differently, overturned the judgment, and referred the case back to the finance court. The precondition for inheritance tax exemption is, according to § 13 para. 1 no. 4c of the Inheritance and Gift Tax Act, that the heir uses the family home immediately for ten years for residential purposes. Exceptions are possible if the heir is prevented from using it for residential purposes due to compelling reasons. Compelling does not only mean the impossibility of self-use, the BFH clarified. Rather, compelling reasons also exist if further self-use is unreasonable. The finance court must now examine this regarding the plaintiff’s health condition.
Experienced lawyers in tax law can advise.
