For inherited real estate, a significantly higher inheritance tax might apply 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. Should the Bundestag and Bundesrat give the green light for the legislative project, it will also lead to amendments to the Valuation Act, which in turn could result in higher inheritance taxes for real estate as early as the beginning of 2023, explains the law firm MTR Legal, which focuses a part of its advisory services on inheritance law.
If the testator has not written a will, German inheritance law stipulates that the statutory order of succession applies, meaning that close relatives such as spouses, partners, or children inherit first. They are subject to tax exemptions. For spouses and partners, the current exemption for inheritance and gift tax is 500,000 euros, children can claim an exemption of 400,000 euros, and for grandchildren, the exemption is still 200,000 euros.
If real estate is included in the estate, the exemptions are quickly exhausted. This is especially true if the planned amendments to the Valuation Act take effect. Then the inheritance tax for condominiums, single-family homes, and rental properties could rise significantly. The cause for this is particularly that the income and tangible value methods for valuing developed properties and the methods for valuation in long-term lease cases and cases with buildings on third-party land are being adjusted to the Valuation Regulations for Real Estate of July 14, 2021. Experts expect an increase in inheritance tax for real estate by 20 to 30 percent, in some cases even up to 50 percent, if the law is passed as planned.
Affected real estate owners should therefore plan the transfer of the properties proactively and in a tax-optimized manner. One option could be the gifting during one’s lifetime. Here, exemptions can be used anew every ten years.
MTR Legal is happy to provide you with an experienced and competent lawyer in inheritance law for careful planning in matters of inheritance law.
