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New German Inheritance Tax Law


by Dr. Peter K.-D. Barandt, Attorney at Law (New York),
Attorney at Law (Rechtsanwalt) (Frankfurt),
Bar-Approved Specialist in Tax Law (Frankfurt),
M.B.A. (U. of Cologne), LL.M. (SMU, Dallas, Texas)

In late 2008 Germany has enacted a new Inheritance Tax (Estate Tax) Law and a subsequent amendment thereto in late 2009.

Its provisions will mandatorily apply to any death occurring on or after January 1, 2009, but each Heir/Beneficiary (“Erbe”, “Vermächtnisnehmer”) has a right to opt for the retroactive application of the new rules for any death occurred in 2007 and 2008, i.e. in the two year time frame from January 1, 2007 through December 31, 2008 immediately preceding January 1, 2009.

The new rules favor a Decedent’s (“Erblasser”) surviving spouse, registered same-sex life partner (“Eingetragener Lebenspartner”), and lineal descendant, such as a surviving child, stepchild and grandchild, as well as a surviving lineal ancestor (limited to parents and grandparents), whereas all other recipients, including but not limited to siblings, nieces, nephews, divorced spouses, step parents, parents-in-law and children-in-law, will be taxed at a considerably higher inheritance tax rate of up to 43 percent with lower personal exemption amounts (“Persönliche Freibeträge”).

Class One (“Steuerklasse I”) recipients, i.e. surviving spouses, registered same-sex life partners (“Eingetragene Lebenspartner”), surviving children, stepchildren and grandchildren, surviving parents and grandparents, will benefit from a general increase of personal exemption amounts (“Persönliche Freibeträge”) up from previously Euros 307,000.00 to now Euros 500,000.00 in the case of a surviving spouse or a registered same-sex life partner, from previously Euros 205,000.00 to now 400,000.00 in the case a surviving child, a stepchild or a grandchild (parents predeceased), from previously Euros 51,200.00 to now Euros 200,000.00 in the case of a surviving grandchild (parents surviving), and from previously Euros 51,200.00 to now Euros 100,000.00 in the case of parents and grandparents.

Class Two (“Steuerklasse II”) recipients, i.e. siblings, nieces, nephews, divorced spouses, step parents, parents-in-law and children-in-law, will generally benefit also from a general increase of the personal exemption amount (“Persönlicher Freibetrag”) up from previously Euros 10,300.00 to now Euros 20,000.00.

Class Three (“Steuerklasse III”) is the “catch-all” class of inheritance (estate) taxpayers covering all other recipients at a personal exemption amount (“Persönlicher Freibetrag”) up from previously Euros 5,200.00 to now Euros 20,000.00 and at inheritance tax rates up ranging from previously 17 through 50 percent to now 30 through 50 percent.

The application of the aforementioned personal exemption amounts (“Persönliche Freibeträge”) is dependent on that either the decedent or the beneficiary has had a residence in Germany at the time of decedent’s death.

Otherwise, only a rather nominal personal exemption amount (“Persönlicher Freibetrag”) of previously Euros 1,200.00 and of now Euros 2,000.00 will be granted.

In the latter case, however, of both the decedent and the beneficiary being non-residents in Germany, German inheritance tax will be imposed only on certain qualified assets located in Germany.

For better optical reference, all foregoing remarks will be summarized in a synopsis and diagram format below:


Tax Class Relationship of Heir/Beneficiary/
Recipient with Decedent
Personal Exemption Amount
in Euros
    old new
One Spouse
Child, stepchild, grandchild
(if parents predeceased)
307,000

205,000
500,000

400,000
Grandchild
Parents and grandparents
(if inheritance, not gift)
  51,200 200,000 (grandchild)
100,000 (parents and grandparents)
Two Parents and grandparents
(if gift, not inheritance),
sibling, niece/nephew,
divorced spouse, stepparents,
parents-in-law/children-in-law
  10,300   20,000
Three Registered same-sex life partner
Other
    5,200
    5,200
500,000
  20,000
All Tax Classes Decedent and beneficiary with no German residence at time of decedentís death     1,200     2,000

 

Net Worth of Inheritance in Euros
(exceeding personal exemption amount)
Inheritance Tax Rate in Percent
  Class One Class Two Class Three
old new old new old new old new
up to 52,000 75,000 7 7 12 15 17 30
up to 256,000
300,000 11 11 17 20 23 30
up to 512,000
600,000 15 15 22 25 29 30
up to 5,113,000
6 million 19 19 27 30 35 30
up to 12,783,000
13 million 23 23 32 35 41 50
up to 25,565,000 26 million 27 27 37 40 47 50
over 25,565,000 over 26 million 30 30 40 43 50 50