A ruling of the Bundesfinanzhof (BFH), Germany’s Federal Fiscal Court, illustrates the distinction made for the purposes of inheritance tax between a family home and the claim to transfer ownership in a family home (Az.: II R 14/16).
A family home can be inherited tax free, irrespective of its value, if the inheriting spouse or partner continues to occupy the home for an additional ten years. Children can also benefit from this exemption from inheritance, albeit with restrictions. However, there lurks a trap in German tax law if it is merely the right to transfer ownership in a family home and not the family home itself that is handed down. We at the commercial law firm GRP Rainer Rechtsanwälte note that under these circumstances the case law of the BFH confers no right to exemption from inheritance tax.
In a judgment from November 29, 2017, the Bundesfinanzhof ruled that a claim backed by a priority notice of conveyance to transfer ownership in a family home acquired by the surviving spouse by virtue of the deceased’s passing is not exempt from inheritance tax. It held that tax exemption requires that the deceased spouse have been owner or co-owner of the family home and that the heir acquires these ownership rights due to the former’s death.
This did not happen in the instant case. The testatrix had acquired a condominium and four underground parking spaces for about 4.5 million euros in 2007. A priority notice of conveyance was registered in the land register in her favor. In December of 2008, the married couple moved into the property. The testatrix had set out in a will that the condominium was to go to her husband alone and that the remaining assets were to be distributed according to the rules of intestate succession. At the time of her death, the testatrix had not yet been registered in the land register as the owner of the property.
After the death of his wife, the husband had himself registered in the land register as the owner in February of 2010 and continued without interruption to use the property as a private residence. In his inheritance tax declaration, he applied for an exemption from inheritance tax for the acquisition of the house. The tax office rejected the application and the man’s legal action was also unsuccessful. The BFH stressed that a claim backed by a priority notice of conveyance to transfer ownership in a family home acquired by reason of death is not exempt from inheritance tax.
Lawyers who are experienced in the field of tax law can advise on matters pertaining to inheritance tax.
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