German Inheritance Tax & Real Estate
Last updated: 12 Oct 2025
German Inheritance Tax & Real Estate
This deep-dive explains how German inheritance tax (Erbschaftsteuer) treats real estate: the family-home exemption, the 200 m² rule for children, valuation under the Bewertungsgesetz (BewG), debt deductions and usufruct, payment deferral options, and—crucially—how things change in cross-border cases (situs allocation and foreign-tax credits).
Deep-Dive: Business Topics
85%/100% relief for business assets (§§ 13a/13b ErbStG), wage-sum and retention tests, administrative-asset limits, large-transfer rules, cross-border shares/PEs, valuation (BewG / IDW S 1), and clawbacks.
Deep-Dive: Real Estate Topics
Family-home exemption, 200 m² child rule, valuation under BewG, debt/usufruct deductions, deferral, and cross-border situs & foreign-tax credits for property.
- A) German-only perspective (domestic real estate)
- Valuation of real estate (BewG)
- Mortgages, usufruct & deductions
- Payment deferral & liquidity
- B) Cross-border perspective (situs & credits)
- Planning ideas (domestic & cross-border)
- Deep-Dive: Business Topics
- Deep-Dive: Real Estate Topics
- FAQ
- Talk to us
A) German-only perspective (domestic real estate)
1) Family-home exemption (spouse/registered partner)
- Tax-free acquisition if the surviving spouse/partner inherits the deceased’s owner-occupied family home and continues to occupy it themselves for 10 years.
- Loss of own use within 10 years can trigger clawback (exceptions may apply for compelling reasons).
- The exemption is separate from the standard personal allowance and can fully remove the home’s value from the taxable base.
2) Family-home exemption (children)
- Tax-free up to 200 m² living space if the child inherits the parent’s owner-occupied family home and occupies it for 10 years.
- Space above 200 m² is taxable pro rata after allowances; moving out early risks clawback.
3) Other residential & rental property
- No special exemption for second homes or buy-to-let—tax depends on valuation minus allowances and deductible debts.
- Rentals are typically valued using the income approach (Ertragswertverfahren); owner-occupied condominiums often via comparables (Vergleichswertverfahren).
- Property held in an Erbengemeinschaft (heirs’ community) is allocated by share; later partition does not retroactively change the inheritance tax base.
Valuation of real estate (BewG)
| Asset type | Primary method | Notes |
|---|---|---|
| Owner-occupied condo / single-family house | Comparables (Vergleichswert) | Market-based using comparable sales; quality/location adjustments. |
| Rental residential / mixed-use | Income approach (Ertragswert) | Capitalizes net rent using standard multipliers; land value separated. |
| Commercial property | Income or cost (Sachwert) approach | Depends on market data and property specifics; external appraisal often helpful. |
| Agricultural/forestry | Special sector rules | Outside scope here; distinct capitalization regimes apply. |
For non-listed business property holding real estate, the simplified earnings method or a full IDW S 1 valuation may be used at the entity level; look-through to underlying real estate can be relevant for business-asset relief tests. For a broader view on company interests and relief rules, see our Business Topics deep-dive.
Mortgages, usufruct & deductions
- Debt deduction: Mortgages and loans economically related to the inherited real estate reduce the taxable acquisition. Keep loan agreements and bank confirmations.
- Usufruct (Nießbrauch) & rights of residence: If a third party holds a life usufruct/right of residence, the heir’s value is reduced by the actuarial value of that right under BewG tables.
- Costs: Certain estate administration costs (e.g., valuation, necessary legal costs) can be deductible; routine maintenance is generally not an inheritance-tax deduction.
Payment deferral & liquidity
B) Cross-border perspective (situs & credits)
4) Who taxes real estate?
- Situs rule: Real estate is taxed by the country where it is located.
- Germany’s worldwide reach: If the decedent or heir is an Inländer (resident for ErbSt), Germany includes foreign real estate in the base—as well as granting a potential credit for foreign death duties.
- Non-residents: If neither side is a German Inländer, Germany taxes only German-situs real estate.
5) Foreign-tax credit (Germany)
- Germany may credit foreign inheritance/estate tax paid on the same foreign real estate; limited to the German tax attributable to that asset.
- Where a bilateral inheritance-tax treaty applies (e.g., with the United States or Switzerland), treaty allocation and credit rules override domestic credit mechanics.
- If the foreign country does not levy death duties, there is generally no credit against German tax.
Looking for property-specific issues (family home, valuation, debt/usufruct) in cross-border settings? See our Real Estate Topics deep-dive.
6) Typical cross-border patterns
- German resident heir, foreign real estate: Both the foreign country (situs) and Germany (worldwide) may tax. Use the treaty (if any) or Germany’s foreign-tax credit to avoid double taxation.
- Foreign resident heir, German real estate: Germany taxes the German property; the heir’s home country may also tax worldwide. Relief depends on that country’s law/treaties.
- Holding via a company: Shares are intangibles; situs and treaty treatment differ from direct real estate. This can shift taxation—but can create corporate tax, valuation and anti-avoidance issues. Needs case-by-case review.
Planning ideas (domestic & cross-border)
Domestic
- Confirm eligibility for the family-home exemption (spouse/partner; children with 200 m² cap) and plan for 10-year own-use.
- Use debt efficiently (mortgages reduce the taxable base if economically linked).
- Consider lifetime gifts using the 10-year reset of personal allowances; keep housing needs in mind (e.g., reserve usufruct/Anwartschaften).
- Prepare valuation documents early; challenge obviously non-market assessments with independent appraisals.
Cross-border
- Map situs per asset; identify where estate/inheritance tax arises and whether a treaty governs.
- Schedule cash for two sets of deadlines (situs country and Germany) and gather proofs for foreign-tax credit.
- Assess whether entity holding structures change situs/treaty outcomes—and any side effects (corporate tax, property transfer tax, compliance).
- Align wills across countries (avoid conflicts); keep addresses, IDs, land-registry data and bank attestations synchronized.
ℹ️ Click a question to reveal the answer:
Is the family home always tax-free in Germany?
No. Tax-free treatment requires that the spouse/registered partner—or a child (up to 200 m²)—inherits the owner-occupied family home and personally occupies it for 10 years. Moving out early can trigger clawback, save for narrow hardship exceptions.
Are mortgages and loans deductible against the property value?
Yes—economically related debts (purchase, construction, or renovation loans) reduce the taxable acquisition. Keep loan contracts and bank confirmations. Unrelated consumer debt is generally not deductible for the property.
How is rental or second-home real estate valued for inheritance tax?
The valuation follows the Bewertungsgesetz (BewG): owner-occupied homes often use comparables; rental and commercial property typically use the income approach (capitalizing net rent). If the assessed value is obviously non-market, an independent appraisal can be used to challenge it.
What if foreign estate/inheritance tax is paid on a house abroad?
Germany may grant a foreign-tax credit for the same asset (house abroad), generally limited to the German tax attributable to that property. If an inheritance tax treaty applies, treaty rules govern. If the foreign country does not levy death duties, there is usually no credit.
Does holding foreign real estate via a company avoid German inheritance tax?
Not necessarily. Shares are taxable as intangibles (with different situs/treaty rules), and holding structures can create valuation, corporate-tax, and anti-avoidance issues. Any relief or exposure depends on facts and applicable treaties—seek tailored advice.
Talk to us
We calculate German inheritance tax on real estate, test family-home eligibility, optimize debt deductions, and run cross-border credit/treaty models. Ask us for a filing-ready pack.