For inherited properties, a significantly higher inheritance tax could be applied from 2023. The reason is changes to the Valuation Act, which are part of the planned Annual Tax Act 2022.
The Annual Tax Act 2022 has not yet been passed. If the Bundestag and Bundesrat give the green light to the legislative project, this will also lead to changes in the Valuation Act, which in turn could lead to a higher inheritance tax on real estate as early as the beginning of 2023, explains the law firm MTR Legal, which specializes in inheritance law.
If the testator did not create a will, German inheritance law provides for the statutory order of succession, meaning that close relatives such as spouses and partners or children inherit first. They are entitled to tax allowances. For spouses and partners, the allowance currently stands at 500,000 euros for inheritance tax and gift tax, children can avail a tax allowance of 400,000 euros; for grandchildren, the allowance is still 200,000 euros.
If real estate is part of the estate, the allowances are quickly exhausted. This is even more true if the planned changes to the Valuation Act come into effect. Then the inheritance tax on condominiums, single-family homes, and apartment buildings could significantly increase. This is mainly because the income and intrinsic value method for valuing developed plots and the procedures for valuation in leasehold cases and cases with buildings on third-party land are adapted to the Real Estate Valuation Ordinance of July 14, 2021. Experts expect a rise in inheritance tax on real estate by 20 to 30 percent, in some cases even up to 50 percent, if the law is passed as planned.
Affected property owners should therefore plan the transfer of properties thoughtfully and tax-optimized. One option can be gifting during one’s lifetime. Here, allowances can be reused at intervals of ten years.
MTR Legal is happy to provide you with an experienced and competent attorney in inheritance law for prudent planning regarding inheritance matters.
