Inheritance of property: Stays in the family

This means that the real estate inheritance remains in the family.

© Pia Bublies for ZEIT ONLINE

This article is part of ZEIT am Wochenend, issue 45/2023.

It starts with the big word of the annual tax law. This year, the bases for evaluating the Taxation inherited properties have changed. As a result, the assessed values ​​of houses and apartments on which the tax is calculated have increased in many places. There are certain allowances. But these vary greatly and have not increased for around fifteen years, while real estate has been increasing in value for years. The concern of many families: a significantly increased tax burden for heirs. And in the worst case scenario, the emergency sale of grandmother's house.

How it works?

Residential properties are valued using the so-called comparison method. To measure their value, property prices in the surrounding area are used. Changes in real estate valuation largely affect the other two methods: the income method and the material value method. These are used for residential and commercial rental properties or if a comparable value does not exist. Anyone who inherits a purely residential building does not have to fear a ruinous claim from the tax authorities.

One thing is clear: the legitimate inheritance tax for real estate must be paid promptly – but there are various possibilities to reduce it. For example, by inheriting property as close as possible to the family line, because this is where the largest allocations arise. Anyone who inherits in their immediate family circle “should check whether they actually have access to benefits,” says lawyer and real estate expert Johannes Dannecker-Lauren. After all, that's an impressive 500,000 euros for spouses and 400,000 euros for children and stepchildren – per parent. You can still pass on property worth 200,000 euros to your grandchildren tax-free.

For the lazy

But even if the value of the inherited property is higher than these amounts or the allowances are exceeded for other reasons, there are ways to reduce the tax burden. By donating an asset early in life and taking advantage of the ten-year gift tax period, which allows you to repeatedly exploit the same exemptions that would apply to an inheritance. “You can make a transfer with the testator during your lifetime. Donation follows almost all the same rules as inheritance,” explains Dannecker-Lauren. The allowance can then be used every ten years. This model is popular with the wealthy because it allows them to transfer most of their assets tax-free over decades. And that's one of the reasons people in these circles like to call inheritance tax the “idiot's tax,” says Dannecker-Lauren.

The time window is crucial. Example: a parent offers a property worth one million euros to their only child today in 2023. He can now use the allocation of 400,000 euros. Ten years later – in 2033 – this will be possible again. So 800,000 euros of the value of the property would have been passed on via the tax reduction. In 2043, an additional 400,000 euros would be added. After a further ten years, the property would pass to the child tax-free, as the taxman would then no longer be able to make retroactive claims even in the event of the testator's death. In order for parents to continue to have housing, they are generally granted a usufruct or right of residence. This reduces the assessed value of the property.

For advanced

In the case of family constructions, inheritance tax can also be avoided in another way: through a chain donation, in which an asset is transmitted within the family in several stages. Lawyer Dannecker-Lauren gives the following example: A property must pass from father-in-law to son-in-law. The compensation is then 20,000 euros. It would be cheaper this way: the father-in-law could initially transfer half of the assets to his wife, who can benefit from an allowance of 500,000 euros. In a subsequent process, both parents could pass on their respective share to their own child, who could then claim the tax relief of 400,000 euros twice. If she ultimately transfers the property to the husband, he is entitled to an allowance of 500,000 euros.

What's the point?

The concern is understandable: a sharp increase in inheritance tax could mean that a house that has been used by the family for a long time can no longer be financed. A fire sale could result. In reality, this will probably remain the exception rather than the rule, believes Johannes Dannecker-Lauren – at least for owner-occupied apartment buildings. Tax exemptions can be used to significantly reduce the tax burden – and the property can stay in the family for future generations.

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