If you own assets in Germany (Berlin, Frankfurt, Munich, etc.) or are expected to inherit assets in this country, it is important to understand the legal and tax implications involved in the inheritance process. This is because even non-residents may be required to pay tax according to local law. For example, an Israeli resident who owns real estate in Germany may be subject to inheritance or gift tax liability, even if neither the testator nor the heir is a German resident.
In 2024, several significant changes were made to the German inheritance tax law, which came into effect on January 1, 2025.
Germany has complex rules for the taxation of inheritances and gifts, with significant implications for heirs of assets. Early understanding of German law and early planning of wills, residency, and gifts during lifetime can significantly reduce exposure to tax payments when transferring assets between generations.
Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.
What’s the Difference Between Inheritance Tax and Estate Tax?
- Estate Tax – Imposed on the deceased’s assets before they are transferred to the heirs.
- Inheritance Tax – Applies to all assets received by the heir.
Inheritance Tax and Gift Tax in Germany
In Germany, there is no estate tax, but rather inheritance tax (Erbschaftsteuer) and gift tax (Schenkungsteuer) – which can reach up to 50% of the inheritance value. Inheritance tax in Germany is calculated based on the fair market value of the inheritance at the time of death and according to the family relationship to the testator. The tax is progressive, with rates increasing with the value of the inheritance, but also dependent on the family relationship between the testator and heir and their place of residence.
In Germany, there is an integrated system of inheritance tax and gift tax obligations. Therefore, for the purpose of calculating inheritance tax – the amount of inheritance and the amount of gifts (received during the 10 years preceding death) are accumulated together. Gifts given more than 10 years before the date of death are calculated separately and offset against the total accumulated tax payment.
For tax calculation purposes, the testator’s debts can be deducted under certain conditions, as well as certain expenses such as funeral expenses, up to a one-time amount of 15,000 euros. In addition, certain assets may enjoy tax exemption or benefits, such as:
- Certain business assets, share participation under certain conditions, or if part of the estate is a family-owned business, may receive significant tax benefits if they meet the complex requirements and strict conditions of German law.
- Property that served as the family residence before the testator died is exempt from inheritance tax as long as it meets certain conditions.
When Does Inheritance or Gift Tax Apply in Germany?
Inheritance or gift tax applies if one of the following conditions is met:
- The testator, donor, or beneficiary/heir is a German resident. If so, inheritance tax applies to all inheritance assets, including those located outside Germany.
- Assets located in Germany are transferred by inheritance or gift even if none of those involved is a German resident.
Who is Considered a German Resident for Tax Purposes? An individual will be considered a German resident for tax purposes if they have a permanent residence or habitually live in Germany; they are a German citizen who has not lived abroad for five consecutive years without residence in Germany; they are a German citizen employed by a German authority abroad (such as the German embassy).
Tax-Exempt Inheritances (Freibeträge)
According to German law, the exemption is determined by the relationship between the testator and the heir:
- Spouse: up to 500,000 euros
- Child: up to 400,000 euros
- Grandchild: up to 200,000 euros
- Parents and grandparents: up to 100,000 euros
- Others: up to 20,000 euros
This exemption applies to each transfer and each heir/beneficiary. If multiple transfers occur, this exemption may apply more than once under certain conditions.
In addition to the exemption of up to 500,000 euros, spouses and common-law partners also receive tax-exempt benefits of 256,000 euros. This means that inheritance tax for spouses is only charged when the value of the inheritance exceeds 756,000 euros.
Similarly, for children, an inheritance of up to 400,000 euros is tax-exempt. However, children also have an additional age-dependent tax-exempt allowance designed to give them more financial security. The younger the child when their parent dies, the more years they will go through – so the thinking went – without the benefits and financial support that their parent could have provided. Therefore, the additional tax-exempt allowance is higher for younger children. Here is a breakdown of the additional tax-exempt allowance based on age:
- Children aged 0-5: 52,000 euros
- Children aged 5-10: 41,000 euros
- Children aged 10-15: 30,700 euros
- Children aged 15-20: 20,500 euros
- Children aged 21-27: 10,300 euros
Tax Rates
Tax rates depend on both the relationship to the testator and the value of the taxable asset after the exemption:
- Spouses, children, descendants (also parents and grandparents under certain conditions) – 7% – 30%
- Siblings and nephews (parents and grandparents to whom the above conditions did not apply) – 15% – 43%
- Others – 30% – 50%
Inheritance Taxation in Israel Compared to Germany
In Israel, unlike Germany, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full value of the inheritance received, such as capital gains tax when selling the asset.
The tax treaty between Israel and Germany includes provisions that can prevent double taxation, but it is important to plan the reporting and filing accurately to avoid double payment.
To read the Israel-Germany Tax Treaty in English on the Ministry of Finance website, click here.
Making a Will in Germany – The Key to Tax Savings and Dispute Prevention
Inheritance does not always transfer smoothly to heirs. Sometimes complex procedural steps are needed to obtain a probate order or permission to realize the assets.
Creating an organized will is not just a matter of personal desire; it is an integral part of estate taxation. A detailed will can ensure that assets are transferred smoothly and efficiently to the heirs. The will should include the wishes of the deceased but must also be adapted to the requirements of the law so that its validity is not compromised.
When drafting a will, it is often possible to choose the law that will apply to it. This choice can have a substantial impact on inheritance planning and its future realization.
Without advance planning, i.e., inheritance without a will, the law that will apply to the deceased’s assets will be the law of the deceased’s last and principal place of residence. For example, if the last place of residence was in Germany, German law will apply to the inheritance in Israel.
In Germany, forced heirship rules are not as strict as in other European countries, so the testator can exclude family members who are their legal heirs from their will – but to do so, a valid will must be made that clearly and legally explains how the assets should be distributed.
However, without a will, determining inheritance rights may be more complicated and varies according to the family situation and the last place of residence of the testator.
If you own assets in Germany, our recommendation is to make a will to ensure that the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes and ensure that the process proceeds in an orderly manner even after the death of the deceased.
Received an Inheritance in Germany? 7 Steps for Proper Realization of Inheritance from Germany
1. Clarification of Factual and Legal Background
First, check the type of asset to be inherited, its location, the identity and status of the heirs, the value of the asset, and more.
2. Checking the Timing and Location of Inheritance Realization
Consider whether it is advisable to realize the asset now and, if so, where it is better to realize it – in Germany or Israel?
3. Regulatory and Banking Aspects
It is recommended to check the costs of money transfers, whether there is a need to open an account in Germany or another country for the purpose of transferring funds, what approvals are required, etc.
4. Planning the Asset Transfer
Consider whether to transfer the asset itself or its proceeds, and what the implications are in terms of tax, exemptions, deductions, etc.
5. Avoiding Double Taxation
In light of the existence of a double taxation prevention treaty, it is recommended to check whether there is a mechanism for crediting tax paid in Germany against tax liability in Israel. Make sure that the reporting is done correctly and accurately to avoid double payment.
6. Checking the Future Effects on the Asset
It is recommended to examine the future effects on the asset, for example, a future sale of the asset will often be subject to capital gains tax in Israel as well.
7. Transferring the Asset to Israel
Performing all necessary actions, submitting documents, handling matters with banks in Germany and Israel, and executing the asset transfer.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most tax-efficient way, while addressing legal issues in Israel and Germany and issues related to banking and regulation. For example, whether it is better to realize a certain asset in Germany or transfer it to Israel; how to transfer inheritance funds to a bank account in Israel; how to use various exemptions between heirs; whether to give gifts during lifetime; whether to establish a trust, and more. Strategic planning, according to law and tax treaties, is essential to minimize tax liabilities.
Nimrod Yaron & Co. has extensive experience in personally and professionally accompanying Israelis with assets or inheritances in many countries around the world, including Germany, from the first stage of planning, through dealing with authorities in Germany and Israel, to transferring inheritance funds to the heir’s bank account.
We work with all relevant professional entities in Germany and Israel and offer legal solutions both in terms of taxation and banking, tailored to the circumstances of the case.
If you have inherited an asset or wish to bequeath assets in Germany in the future, our team of lawyers specializing in international taxation and inheritance law will be happy to advise you on this matter – contact us for an initial consultation.
Q&A
Do I have to pay inheritance tax if I received an inheritance in Munich?
It’s possible – depending on whether you or the testator is considered a German resident, or if the asset is located within Germany. Additionally, it should be examined whether the asset or its value falls within the provisions of the law exempting it from inheritance tax, either by virtue of dedicated exemptions or by virtue of reliefs applicable to certain types of assets.
Will a gift I received from my parents 10 years ago be taxed?
If the gift was received less than 10 years before the date of death, it will be added to the value of the estate for tax calculation purposes.
Do I have to pay tax in Israel on an asset inherited from Germany?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after the sale of the property. It is important to check the recommended date for selling the inherited property.
Why is it important to plan the transfer of assets between generations in advance?
The transfer of assets between generations from abroad is not just a family matter but also a tax and economic issue. Early planning, considering legal issues in Israel and abroad, can save a lot of money and prevent legal complications.
How can the inheritance be realized optimally and save tax?
To realize the inheritance optimally and save unnecessary tax payments, all tax options should be examined, including utilizing exemptions, planning gifts, establishing companies, trust funds, and more.
How can the inheritance tax liability in Germany be reduced?
Through early tax planning, which includes drafting a will, utilizing exemptions, giving gifts during your lifetime, and more, you can significantly reduce your tax liability.
Is it better to give an asset as a gift during lifetime or to bequeath it?
The choice between giving a gift and bequeathing depends on the circumstances of the case. Sometimes a gift will be taxed similarly to an inheritance. Therefore, the legal and tax aspects should be examined before making a decision.
What are the implications in case there is no will?
In the absence of a will, the inheritance will be divided among the legal heirs according to German inheritance law.
What documents are required for the process of realizing an inheritance in Germany?
To realize an inheritance in Germany, documents such as a death certificate, a will (if one exists), copies of the heirs’ ID cards, property ownership documents, bank account confirmations, and more are required.
How long does the process of realizing an inheritance in Germany take?
It should be considered that the process of realizing an inheritance in Germany can take between several months and a year or more, depending on the complexity of the testator’s estate, the number of heirs, the existence of a will, and other factors.
