Inheritance Tax – What Tax Considerations Do Heirs Need to Be Aware Of?

An inheritance is always associated with a sad event. Nevertheless, a substantial inheritance can, of course, be financially attractive. However, very few people are prepared for the death of a relative and are therefore unaware of the general conditions surrounding an inheritance. One issue that is often the focus of attention is inheritance tax. Often, heirs are unaware of the tax implications and, above all, the obligations that arise in the event of an inheritance. Does tax even have to be paid? How much is the tax? What must an heir do? We will address all these questions for you, the heirs, in the upcoming article.

Heirs Have a Duty to Report

If you receive an inheritance, you are required to report this to the tax office. Every heir should comply with this reporting obligation! Any attempt to conceal an inheritance will fail. The tax office obtains its information from various sources, which, as an heir, you rarely have a complete overview of. First, banks and government agencies are required to report deaths. From that point on, the tax office already has the information that an inheritance may be pending and can review a corresponding inheritance notification against this background. The mere suspicion that an inheritance has been concealed authorizes the tax office to conduct further investigations. For example, account information and bank transfers can be reviewed. Playing hide-and-seek with the tax authorities is therefore anything but advisable. If it is later determined that you failed to report an inheritance, this can be interpreted as tax fraud.

Inheritance Tax Exemptions – When Do You Have to Pay Taxes?

Once the tax office has learned of the inheritance, it will determine whether a tax is due. Here, we have good news. There are substantial tax-free allowances under the inheritance tax system. Taxes are only due once these allowances are exceeded. The amount of the exemptions varies greatly from person to person and depends on the degree of kinship. Exemptions for spouses are the highest. Inheritances from unrelated individuals, on the other hand, are subject to a lower exemption. The following exemptions apply:

• Spouses & registered partners (500,000 euros)
• Children, stepchildren, and adopted children (400,000 euros)
• Grandchildren (200,000 euros)
• Parents & grandparents (100,000 euros)
• Siblings, stepparents, children-in-law (20,000 euros)
• Non-relatives (€20,000)

It is clear that many heirs do not have to pay any taxes at all, provided these exemption limits are not exceeded. It is nevertheless important that you report the inheritance. Only the tax office can ultimately confirm that the inheritance remains tax-free below the exemption limits.

How much tax is levied on the inheritance?

As soon as the exemption limits are exceeded, heirs must pay taxes. Different tax rates or tax brackets are used to calculate the tax amount, which are also based on the degree of kinship. Here, too, close relatives pay less tax. The following classifications apply:

• Tax Class 1: Spouses, registered partners, children, stepchildren, grandchildren, step-grandchildren, great-grandchildren, (grand)parents
• Tax Class 2: Siblings, divorced spouses, nieces, and nephews
• Tax Class 3: Other individuals

A specific tax rate is applied based on the tax class and the amount of the inheritance (minus the exemption). The tax rate ranges from a minimum of 7% to a maximum of 50%.

Note: Once you have accepted the inheritance, you can no longer claim a tax exemption. Under tax law, no general tax exemption is granted in addition to the tax-free allowance.

Tax Consulting in Düsseldorf and Oberhausen

Do you have any questions about this article or need help with a tax matter? With our offices in Düsseldorf and Oberhausen, we are the ideal partner for you. Our team of qualified professionals will handle your tax matters. We are also the right experts for inheritance-related issues. Contact us to schedule an initial consultation.