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German inheritance and gift tax law

German inheritance and gift tax allowances

Personal allowances under Section 16 of the German Inheritance and Gift Tax Act (ErbStG) determine how much of an inheritance or gift remains tax-free based on the personal relationship between the recipient and the decedent or donor. Allowances range from EUR 500,000 for spouses and registered partners to EUR 20,000 for many other recipients.

Section 16 ErbStG

The personal allowance depends on the relationship to the transferor

German personal allowances are determined by the relationship between the recipient and the decedent or donor. Spouses, children and grandchildren receive significantly higher allowances than siblings, unrelated persons or many other recipients.

The allowance is applied to each recipient's acquisition rather than to the estate as a whole. If a parent leaves assets to several children, each child generally has a separate personal allowance.

Personal allowances must be distinguished from other German tax exemptions. Depending on the case, an additional maintenance allowance under Section 17 ErbStG or specific exemptions under Section 13 ErbStG may also be relevant.

Section 16(1) ErbStG

Personal allowances at a glance

In cases of unlimited German inheritance or gift tax liability, the following personal allowances currently apply.

Recipient Allowance Typical tax class
Spouse or registered civil partner EUR 500,000 I
Children and stepchildren EUR 400,000 I
Children of a deceased child EUR 400,000 I
Grandchildren where the relevant parent is still alive EUR 200,000 I
Other persons in tax class I, especially parents and grandparents in acquisitions upon death EUR 100,000 I
Persons in tax class II EUR 20,000 II
Other persons in tax class III EUR 20,000 III
Special rule for parents and grandparents Parents and other ancestors are generally in tax class I when they inherit and therefore receive an allowance of EUR 100,000. For lifetime gifts, however, they generally fall into tax class II and the personal allowance is normally only EUR 20,000.

Family relationship

Children, grandchildren, parents and other relatives

Spouses & registered partners

EUR 500,000

Spouses and registered civil partners have the highest personal allowance. In an inheritance, an additional maintenance allowance under Section 17 ErbStG may also be available.

Children & stepchildren

EUR 400,000

Each child and stepchild generally has a separate EUR 400,000 allowance in relation to each parent or stepparent.

Grandchildren

EUR 200,000 or EUR 400,000

The allowance for grandchildren is generally EUR 200,000. If the child of the decedent or donor through whom the grandchild descends has already died, the grandchild's allowance increases to EUR 400,000.

Parents & grandparents

Inheritance and gifts differ

For acquisitions upon death, parents and other ancestors are in tax class I and generally receive EUR 100,000. For lifetime gifts, they generally fall into tax class II with an allowance of EUR 20,000.

Siblings & other tax class II recipients

EUR 20,000

This group includes, among others, siblings, nieces and nephews, stepparents, children-in-law, parents-in-law and divorced spouses. The personal allowance is generally EUR 20,000.

Unrelated persons

EUR 20,000

Unrelated recipients generally fall into tax class III and also receive a personal allowance of EUR 20,000.

Section 14 ErbStG

The allowance can be used again after ten years

Multiple acquisitions from the same person within ten years are aggregated for German inheritance and gift tax purposes. The personal allowance is therefore not available in full for every separate gift made during that period.

Example: if a parent gives a child EUR 300,000 and then another EUR 200,000 within ten years, the two transfers are aggregated. The EUR 400,000 allowance is not granted twice.

Once more than ten years have passed between the relevant transfers, the earlier transfer generally falls outside the aggregation rule in Section 14 ErbStG. This is why the ten-year period can be important in long-term succession and gift planning.

Multiple transferors

Allowances apply separately in each donor-recipient relationship

The ten-year aggregation rule applies to acquisitions from the same person. Transfers from different persons therefore generally form separate acquisition relationships.

1

Mother to child

The child generally has a separate EUR 400,000 allowance for acquisitions from the mother.

2

Father to child

Transfers from the father form a separate donor-recipient relationship. The child generally has another EUR 400,000 allowance in relation to the father.

3

Several children

Each child is a separate recipient. Transfers by parents to several children are therefore analysed separately for each child.

4

Several gifts

Repeated transfers between the same two persons within ten years are generally aggregated.

Section 17 ErbStG

Additional maintenance allowance for acquisitions upon death

In addition to the personal allowance under Section 16 ErbStG, certain recipients may receive an additional maintenance allowance under Section 17 ErbStG when the acquisition occurs upon death.

Spouses & registered partners

Up to EUR 256,000 additional allowance

The surviving spouse or registered partner generally receives an additional maintenance allowance of EUR 256,000. Certain tax-exempt pension or survivor benefits can reduce this amount.

Children up to age 5

EUR 52,000

Children within tax class I no. 2 may receive an additional allowance of EUR 52,000 if they are no more than five years old at the relevant time.

Children over 5 up to 10

EUR 41,000

For this age group, the additional maintenance allowance is EUR 41,000.

Children over 10 up to 15

EUR 30,700

The statutory maintenance allowance for this age group is EUR 30,700.

Children over 15 up to 20

EUR 20,500

The additional allowance for this age group is EUR 20,500.

Children over 20 but under 27

EUR 10,300

In the final age bracket before age 27, the additional maintenance allowance is EUR 10,300.

Only for acquisitions upon death The additional maintenance allowance under Section 17 ErbStG is not an extra general gift-tax allowance. It does not apply to lifetime gifts.

International cases

Allowances in cases of limited German tax liability

Where only limited German inheritance or gift tax liability exists under Section 2(1) no. 3 ErbStG, personal allowances do not necessarily apply in the same way as in cases of unlimited tax liability. Section 16(2) ErbStG provides for a proportional reduction.

For example, if both the decedent and the recipient live outside Germany and only certain German-situs assets are subject to German inheritance tax, the personal allowance is generally reduced in proportion to the assets that fall outside the German limited-tax base.

Certain earlier acquisitions from the same person within ten years can also be relevant to the calculation. In international cases, the effective allowance can therefore differ significantly from the headline amount in Section 16(1) ErbStG.

International situations

Which additional questions arise in cross-border inheritances and gifts?

1

Unlimited or limited German tax liability?

Before calculating allowances, it must be determined whether Germany may tax the entire worldwide acquisition or only certain German-situs property.

2

Foreign inheritance or gift tax

If the same transfer is taxed abroad, an inheritance-tax treaty or a foreign tax credit under Section 21 ErbStG may be relevant.

3

Valuation of foreign assets

The personal allowance is applied only after the taxable acquisition has been determined. Valuation questions can therefore be particularly important where foreign assets are involved.

4

Prior gifts worldwide

In cases of unlimited tax liability, earlier cross-border acquisitions within the ten-year period can also be relevant to the German aggregation rules.

Systematic distinction

Personal allowances and specific tax exemptions are not the same

Section 16 ErbStG provides personal allowances based on the relationship between recipient and transferor. Separately, the ErbStG contains specific exemptions for certain assets and transfer situations.

The taxable acquisition can only be determined reliably after the assets have been valued and relevant exemptions have been considered. The personal allowance is therefore an important part of the calculation, but not the only one.

International inheritance and gift tax

Inheritance or gift with a German connection?

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