Inheritance Tax on Real Estate: What Costs Are Involved?

Key Facts

• Once you have inherited a property, you must inform the tax office about it.

• The amount of inheritance tax for real estate depends, among other things, on the degree of kinship.

• Heirs are divided into different tax classes, which determine the amount of tax allowances.

Inheriting Property – A Major Financial Matter

Inheriting real estate is a significant event — not just emotionally, but also financially. Inheritance tax can result in certain costs for you.

But how high is the inheritance tax? Are there any exemptions? Can an inherited house even be tax-free?

Here, we explain everything about tax rates, exemptions, and tax classes.

Inherited Property: What Is the Process?

If you have inherited a property, there are several steps and decisions to make. Whether you decide to gift it to your children, sell it, or live in it yourself, it’s important to understand what comes next. Below is an overview of a typical process:

01. Decision

Will you accept or reject the inheritance?
If you accept, you must inform the tax office.
If you reject it, you do not need to notify the tax office, and the following steps do not apply.

02. Informing the Tax Office

If you decide to accept the inheritance, you must notify the tax office within three months.
A simple written notice is sufficient, but according to §30 of the German Inheritance Tax Act (ErbStG), it must include:

• Full name, occupation, and address of both the deceased and the heir

• Date and place of death of the deceased

• The nature and value of the inherited property

• The legal basis of acquisition (e.g., statutory inheritance or testamentary gift)

• The relationship to the deceased (e.g., degree of kinship)

• Information about any prior gifts from the deceased (type, value, and date)

03. Tax Declaration: Yes or No?

In the next step, the tax office decides whether you need to submit an inheritance tax declaration.
If not, no further steps are required.

04. Submitting the Tax Declaration

If required, you must complete two forms and submit them to your local tax office.

Required Forms:

• Main Form (Mantelbogen): This includes general information about the inheritance. If there are multiple heirs filing jointly, this form only needs to be filled out once.

• Annex Form (Anlage): This includes detailed information about the inheritance. Each heir must complete their own annex form, and all forms should be submitted together.

• In addition, you must prepare an inventory list of all inherited assets and belongings.

Tax offices in each federal state provide templates for this purpose.

If a executor or estate administrator has been appointed, they will handle the tax declaration on your behalf.

How High Is the Inheritance Tax for Real Estate?

Once you notify the tax office, you become liable for inheritance tax.
However, depending on the tax-free allowance (Freibetrag), you may not need to pay any tax at all.

The rule is simple:

“The closer your relationship to the deceased, the lower your tax burden.”

The amount of inheritance tax depends on several factors:

• Use of the property: Special rules apply if the property is used as a primary residence by a spouse or children.

• Type of use: Is it a family home or a rented property?

• Market value: Does it exceed the tax-free allowance?

Tax Classes for Heirs

Inheritance tax classes are defined by the relationship between the heir and the deceased.
These classes are different from regular income tax classes.

Tax Classes:

Tax Rates According to §19 ErbStG

Tax-Free Allowances

If the inherited value is below a specific allowance, you do not have to pay inheritance tax.
The amount of this allowance depends on your relationship to the deceased, as regulated by §16 ErbStG.

Example Calculation

Let’s say the inherited estate is worth €500,000:

• Child (Class I, 11%)
  Taxable amount: €100,000 → €11,000 tax
  (after €400,000 allowance)

• Brother (Class II, 25%)
  Taxable amount: €480,000 → €120,000 tax
  (after €20,000 allowance)

• Friend (Class III, 30%)
  Taxable amount: €480,000 → €144,000 tax
  (after €20,000 allowance)

However, there are also ways to reduce or avoid inheritance tax.

What Is the Care Allowance (Pflegefreibetrag)?

If you cared for the deceased without pay or for inadequate compensation, you can claim a care allowance under §13(1) ErbStG to reduce your inheritance tax.

You must apply for this allowance together with your tax declaration, as the tax office will not know this automatically.

Eligibility Requirements

To claim the allowance, you must prove that:

• You provided care free of charge or for a minimal fee (a care diary is helpful).

• The deceased was in need of assistance.

Recognized Care Activities

Care can take many forms. The following tasks are recognized as caregiving:

• Personal hygiene assistance

• Help with dressing

• Preparing and serving meals

• Cleaning living spaces

• Household support

• Accompanying medical appointments

• Walking assistance

• Grocery shopping or errands

• Managing correspondence

• Applying for care-level benefits or equipment

Amount of the Allowance

The care allowance is up to €20,000, depending on the hours of care provided.
The value is calculated based on the standard hourly rate of professional caregivers.

When Is an Inherited House Tax-Free?

A house can also be inherited tax-free.
This is possible, for instance, if the surviving spouse continues to live in the property.

However, there is one condition:

“You must live in the inherited home for at least ten years.”

If you sell or rent the property within that period, inheritance tax will become due retroactively.