16. Sep 16

FG München: Prerequisites for exemption from inheritance tax in case of family home

Family homes can only be passed on to one’s spouse or children free of tax if certain conditions are met. That was the verdict of the Finanzgericht (FG) München [Fiscal Court of Munich] in one of its recent rulings.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: In many instances, it is possible to pass on a family home without incurring tax. Spouses are able to assert a tax allowance of 500,000 euros in these cases, whereas the figure is 400,000 euros for children. Under certain circumstances, it is possible to benefit from an inheritance tax exemption that exceeds these tax allowances, e.g. if the heir has personally made use of the property in question for residential purposes for at least ten years. Another example is if the testator himself lived in the bequeathed flat or house. This comes from a judgment of the FG München from February 24, 2016 (Az.: 4 K 2885/14).

In the instant case, a married couple had lived together in their detached house. In March 2010, the couple wanted to move from that house into an owner-occupied apartment, but the move was not possible because the husband came down with a serious illness. Each partner owned a 50 per cent share in the house and the flat. Following the death of the husband, the wife inherited, among other things, her husband’s shares in both properties. She sold the house and moved into the apartment. The tax office subsequently demanded payment of inheritance tax for the inherited properties. The wife resisted these demands and invoked a special regulation, according to which the testator need not have lived in the property up until his death if compelling reasons rendered this impossible.

However, the Finanzgericht München ruled that the widow had to pay the inheritance tax imposed by the tax office. While acknowledging that her husband’s severe illness constituted a compelling reason, it stated that for an exemption from inheritance tax the testator needed to have lived in the flat at least at an earlier point in time. If, on the other hand, he had never lived in the property, this meant there could be no exemption from inheritance tax.

When it comes to matters pertaining to inheritances, lawyers who are versed in the field of succession law can offer comprehensive advice.

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