Bundesfinanzhof: Exemption from inheritance tax for heirs to property

Heirs can obtain an exemption from inheritance tax if they personally make use of an inherited property. According to a ruling of the Bundesfinanzhof (German Federal Fiscal Court), this also applies in the event that there is a delay in occupying the property.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: As a general rule, those inheriting property are exempt from inheritance tax if they personally occupy the property within a reasonable period of time, normally six months, for residential purposes. That being said, the heirs are also entitled to an exemption from inheritance tax in the event that there is a delay in occupying the property due to the settlement of estates. This comes from a ruling of the Bundesfinanzhof (BFH) dated June 23, 2015 (Az.: II R 39/13). However, it is crucial that the reasons for the delay be openly stated.

In the present case, the plaintiff and his sister were each respectively co-heirs to half of the estate of their late father, who passed away at the end of 2010. The father"s estate included a semi-detached house. The testator and his daughter had personally occupied one of the apartments in the house, whereas the other one was rented out. The plaintiff moved into his father"s former apartment at the end of 2011 and acquired sole ownership of the house in the course of the estate being settled in March 2012, yet the tax office only granted a tax exemption with respect to the owner-occupied apartment and only in proportion to the plaintiff"s share in the inheritance, i.e. half. The plaintiff"s legal action challenging this was successful.

The BFH ruled that tax relief ought to have been granted in full and thus also with respect to the part of the house which was acquired in the course of the estate being settled. The Court went on to say that the plaintiff having moved into the testator"s former apartment approx. one year following the accrual of the inheritance had done so within a reasonable period of time, stating that it is possible for a decision to personally occupy an apartment to be regarded as having been made without undue delay even if the apartment becomes occupied only after more than six months have gone by since the accrual of the inheritance. However, the reasons for the delay in occupying the property would have to be explained in a plausible manner.

The Court held that this also applied to the rented apartment, since the reduced valuation was not dependent on a prompt settlement of the estate here either.

Lawyers and tax advisors who are versed in the field of succession law can be of assistance in matters pertaining to succession law and inheritance tax.

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