The family home can be inherited tax-free under certain conditions. However, as a judgment by the Munich Fiscal Court shows (Ref. 4 K 692/20), the tax exemption can only apply to one property.
Tax law stipulates that the family home can be inherited tax-free if certain conditions are met. Among other things, it is necessary that the testator lived in the property before the inheritance, and the heirs use it for their own residential purposes for at least ten years afterwards. If the testator owned multiple properties that they have used consecutively for residential purposes, the tax exemption only applies to one property, explains the corporate law firm MTR Legal Rechtsanwälte, which also advises their clients on tax law and inheritance tax issues.
This is also shown by a judgment of the Munich Fiscal Court. Here, the testator lived with her daughter in her house X and was registered there. The testator also owned another house Y, which was occupied by her son. When the mother died, the daughter and son each inherited half. They agreed that the daughter would inherit house X and the son house Y as sole ownership. In their respective inheritance tax returns, both stated that their house was a family home exempt from inheritance tax.
The tax office did not agree and imposed inheritance tax on the house inherited by the son. The son contested the tax assessment. He argued that his parents had bought the house in 1954 and had lived there since then. When the testator’s predeceased husband fell ill, making further use of the property impossible, the couple moved out in 2002. Subsequently, the son occupied the house.
The Munich Fiscal Court decided that the house should still not be exempt from inheritance tax. By moving out, the testator had given up her household and for more than a decade founded a new one, relocating her main residence to house X. Therefore, the new apartment is to be regarded as the family home, and the tax exemption only applies to this house.
Lawyers experienced in tax law advise at MTR Legal Rechtsanwälte on matters of inheritance tax.
