16. Feb 22

FG Düsseldorf on the transfer of tax relief on estate tax

Tax relief on estate tax is not conditional on the distribution of the estate taking place within a defined timeframe. That was the verdict of the Finanzgericht (FG) Düsseldorf – the Fiscal Court of Düsseldorf – in a ruling from April 21, 2021 (case ref.: 4 K 1154/Erb).

In inheritance cases, spouses, children, or other close relatives may be able to benefit from tax relief on estate tax, with it being possible for estate tax relief to be passed on from heirs to third parties. We at the commercial law firm MTR Rechtsanwälte can report that according to a ruling of the FG Düsseldorf, it is not necessary for the distribution of the estate to take place within six months in order for the transfer of the tax relief to be effective.

The case in question concerned two brothers who in 2015 each inherited half of their parents’ estate, which included, among other things, multiple plots of land and a limited partnership interest. In 2018, the brothers reached an agreement for the purpose of partitioning the estate. This entailed one brother transferring his fifty percent ownership stake in an apartment and in the limited partnership interest to the other brother (later plaintiff). They resolved to divide the land between themselves. The plaintiff subsequently applied for an amendment to the estate tax assessment, claiming that he was now due the maximum estate tax relief on the family home and the business assets as opposed to merely 50 percent.

Unfortunately for him, the tax office did not go along with this line of reasoning. Its official response was that the distribution of the estate can only be taken into account for tax purposes if it takes place shortly after the accrual of the inheritance, i.e., within six months. It was noted that in the present case this did not occur until after three years had passed.

However, the FG Düsseldorf took a different view, ruling that the law does not impose a time limit on the distribution of the estate but that an inherent connection between the accrual of the inheritance and the allocation of the assets is required for the transfer of the tax relief, with it being necessary – particularly in cases involving complex investments – to clarify a number of issues. The FG Düsseldorf noted that while this does take time, the inherent connection is still there. The Court went on to state that in the instant case there were no indications that the transfer of the assets had occurred as a result of the heirs forming a new intention.

The ruling is not yet final; the appeal to the Bundesfinanzhof – Germany’s Federal Fiscal Court – is pending (case ref.: II R 12/21).

Lawyers with experience in the field of tax law can advise on matters pertaining to estate tax and gift tax.

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