01. Sep 15

Inheritance tax: Sole heir must personally occupy inherited apartment

Following a ruling of the Fiscal Court of Hessen, an heir to a co-ownership share in an apartment is not spared from inheritance tax if he does not personally occupy the apartment.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: In order for the heir to a property to be exempt from inheritance tax, it is necessary for him to personally occupy the apartment after the death of the testator and for the apartment to be the centre of family life. Even permitting one’s own mother to occupy the apartment free of charge is not sufficient to receive an exemption from inheritance tax. That was the ruling of the Fiscal Court of Hessen dated March 24, 2015 (Az.: 1 K 118/15).

In the case in question, the sole heir raised a claim for exemption from inheritance tax. She became the sole heir following the death of her father because her mother, who had been appointed as heiress in the will, rejected the inheritance. The estate included an apartment which the mother continued to occupy free of charge. The daughter made a claim for tax exemption in her inheritance tax declaration pursuant to sec. 13 para. 1 no. 4 of the Inheritance Tax Act (Erbschaftssteuergesetz) for the fifty per cent co-ownership share in the apartment. She justified this by saying that the apartment continued to be used as the family home by her mother and that the latter also did not have to pay rent, claiming that this represented owner occupancy of the apartment.

The competent tax office did not recognise this as owner occupancy and thus did not grant exemption from inheritance tax. The Fiscal Court of Hessen rejected the claim as well, stating that even if the claimant inherited only “half” of the apartment, exemption from inheritance tax would only have been possible if the apartment were the centre of family life for the heiress. The Court mentioned in its reasoning that regular visits and overnight stays with the mother or waiving rental income were not sufficient for this purpose. An appeal is allowed.

The case is another example of why an estate ought to be very carefully arranged and how the repudiation of an inheritance can give rise to a financial burden for subsequent heirs. Lawyers who are competent in the field of inheritance law can advise on these issues and ensure that the estate, up to a certain amount, is largely spared from tax.

For more informations: https://www.grprainer.com/en/legal-advice/private-clients/law-of-succession.html

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