German inheritance tax (Erbschaftsteuer) is levied on the acquisition on death. In principle the beneficiary/heir is taxed (not the estate as a separate entity). Liability and scope depend on residence, nationality rules, and the asset’s German nexus.

Unlimited liability (taxation of worldwide assets) generally applies if either the decedent or the beneficiary was resident in Germany at the relevant time. Limited liability covers only German-situs assets (e.g., German real estate) where both are non-resident. German citizens who recently emigrated may still be treated as unlimitedly liable for up to five years (in some cases ten).

Under limited liability, German tax focuses on assets with a German situs (e.g., real estate in Germany, certain business assets). Under unlimited liability, the heir’s taxable base typically includes worldwide assets, subject to double tax relief and treaty rules where available.

Germany uses three tax classes (I–III) based on the heir’s relationship to the decedent. Progressive rates generally range from 7% to 50% depending on class and the size of the taxable acquisition.

Key allowances include: spouse/registered partner €500,000; children €400,000; grandchildren €200,000 (or €400,000 if their parent is predeceased); parents/grandparents (on death) €100,000; others €20,000. These are applied per recipient.

In addition to §16, a maintenance allowance under §17 may apply: up to €256,000 for a surviving spouse (children receive age-based amounts). It is reduced by certain survivor’s pensions and similar benefits.

A principal residence acquired by the spouse (and, under conditions, by children) can be tax-exempt if it is used as the beneficiary’s own home without interruption—typically for 10 years. Otherwise, the exemption can be clawed back.

Qualifying business assets may benefit from 85% (regular relief) or 100% (optional relief) exemption, provided continuation, wage-sum, and administrative assets tests are satisfied. The rules are technical and should be modeled carefully.

Real estate is valued under statutory valuation methods (income, comparable, or cost approaches) intended to approximate market value. Method selection depends on property type and available data; since recent legal changes, values may trend higher in certain situations.

The competent tax office depends on the decedent’s last residence or—under limited liability—the asset location. The inheritance tax return is typically due within three months of being requested by the authorities (extensions possible).

The bilateral treaty coordinates taxing rights, definitions of situs property, and mechanisms for tax credit or exemption. It can significantly reduce double taxation for cross-border estates and lifetime gifts—but careful allocation and documentation are essential.

Personal allowances refresh every 10 years for lifetime gifts, enabling staged transfers. Unmarried partners have only a €20,000 allowance and the less favorable class III rates—planning is key (e.g., marriage, life insurance, or structures that align with family and residence goals).

Bequests to recognized charities are typically inheritance-tax exempt. Dedicated foundations (including family-linked or mixed models) can anchor legacy wishes and provide long-term tax and governance advantages. Proper setup and recognition are crucial.