Inheritance tax on UK inheritance

[Auntie Helen]

Hello ToyTown,

I am so glad this forum is back as I so value the general wisdom!

My Mum died a month ago and I am the executor of her estate, along with my sister. There will be some inheritance tax to pay to HMRC which I am in the process of calculating.

And then suddenly I thought, "I live in Germany, do I also have to pay inheritance tax here?"

I have done some googling to try to find this out but I am struggling a little as the money I inherit will be in pounds and I am inheriting half an English house (my sister gets the other half) that we are in the process of selling, and am paying inheritance tax directly to HMRC in the UK. I will probably get in total after inheritance tax about 410k pounds (480k euros).

Does anyone have any pointers on whether I will be subject to effectively a double inheritance tax (UK and then DE)? Or if there is steuerberater in particular who can help me with this, or if my WISO software would be enough.

We are planning to move to the UK early next year, but if I could end up with a whopping German IHT bill this year I could move to the UK earlier to head that off... maybe.

[LeonG]

Even if you have to pay, for a child, you can inherit up to 400k tax free and the first 75k after that would be at 7% and the other 5k at 11%
You can find this info here: https://www.steuertipps.de/service/rech ... errechner/

[PandaMunich]

My Mum died a month ago and I am the executor of her estate, along with my sister. There will be some inheritance tax to pay to HMRC which I am in the process of calculating.

And then suddenly I thought, "I live in Germany, do I also have to pay inheritance tax here?"

I have done some googling to try to find this out but I am struggling a little as the money I inherit will be in pounds and I am inheriting half an English house (my sister gets the other half) that we are in the process of selling, and am paying inheritance tax directly to HMRC in the UK. I will probably get in total after inheritance tax about 410k pounds (480k euros).

Does anyone have any pointers on whether I will be subject to effectively a double inheritance tax (UK and then DE)?

If the UK inheritance tax amount is higher than the German one, you will not end up paying any German inheritance tax, since you can apply that they do a tax credit for the UK inheritance tax that you paid on that inheritance, in accordance with § 21 ErbStG: https://www.gesetze-im-internet.de/erbs ... /__21.html
You do this application in line 21 of "Anlage Erwerber" of the inheritance tax return: https://www.finanzverwaltung.nrw.de/sit ... aerung.pdf
This complete tax credit is possible because everything you inherited was "Auslandsvermögen", in accordance with § 21 (2) Nr. 2 ErbStG.

But you will have to tell your local Finanzamt that does inheritance tax cases in your neck of the woods (they usually have only one Finanzamt for the entire region that does all inheritance tax cases) within 3 months of the date of the death about the inheritance: https://expertise.tax/en/faq-german-tax ... tance_gift
You can find out which Finanzamt you have to tell by filling in your postal code here: https://www.bzst.de/DE/Service/Behoerde ... _node.html
Then you click on the button "Erbschaft- und Schenkungsteuer".
And then you look which Finanzamt is listed under the heading "Finanzämter mit der Aufgabe „Erbschaft- und Schenkungsteuer”" and click on its name to find out its address.

Since your inheritance is more than the 400,000€ inheritance tax free allowance for the direction "parent" --> "child", they will then send you the paper inheritance tax forms.
But I suggest you simply fill them in on your computer, you will need:

1. Erbschaftsteuererklärung Mantelbogen: https://www.finanzverwaltung.nrw.de/sit ... lbogen.pdf
2. Anlage Erwerber: https://www.finanzverwaltung.nrw.de/sit ... aerung.pdf

Please see here for the instructions for filling in the forms of the inheritance tax return: https://www.finanzverwaltung.nrw.de/sit ... aerung.pdf

The market value in € of your UK house will be declared in line 38 of the Mantelbogen.
Any non-German real estate has to be declared with its market value (= gemeiner Wert) according to § 31 BewG: https://www.gesetze-im-internet.de/bewg/__31.html
The Finanzamt has to accept the selling price of the house as its value on the date of the death, as long as the sale takes place within 1 year of the date of death, this is laid down in § 198 (3) BewG: https://www.gesetze-im-internet.de/bewg/__198.html

The money you inherited in bank accounts gets declared in lines 52 to 55 of the Mantelbogen.

You need to convert the GBP values of all inherited assets into €, using the ECB exchange rate that was valid on the date of her death (if she died on a weekend or on a public holiday, use the exchange rate of the next working day): https://www.ecb.europa.eu/stats/policy_ ... ex.en.html

if my WISO software would be enough.

Your WISO software cannot do an inheritance tax return.
After you have paid the UK inheritance tax and have proof of that (you will need to attach that proof to the German inheritance tax return), fill in the above inheritance tax forms, print them, sign on page 1 of the Mantelbogen and send them by post to whatever Finanzamt is responsible for inheritance tax in your region.

We are planning to move to the UK early next year, but if I could end up with a whopping German IHT bill this year I could move to the UK earlier to head that off... maybe.

It doesn't work like that.
If you were resident in Germany on the date of her death, you are subject to German inheritance tax.
It is enough that either the person who died or the heir lived in Germany on the day of the death, for German inheritance to be due, please see § 2 (1) Nr. 1 a) ErbStG: https://www.gesetze-im-internet.de/erbstg_1974/__2.html

[Auntie Helen]

Panda, that is exactly the information I need, thank you!

[GaryC]

I am sure you have looked into this from a UK perspective but are you sure IHT will be payable in the UK? Have you taken the Residence Nil-Rate Band and the possibility (if appropriate) of transferring any unused Nil-Rate Band and Residence Nil-Rate Band from the first-deceased?

[Escafusa]

My Mum died a month ago and I am the executor of her estate, along with my sister. There will be some inheritance tax to pay to HMRC which I am in the process of calculating.

And then suddenly I thought, "I live in Germany, do I also have to pay inheritance tax here?"

the money I inherit will be in pounds and I am inheriting half an English house (my sister gets the other half) that we are in the process of selling, and am paying inheritance tax directly to HMRC in the UK. I will probably get in total after inheritance tax about 410k pounds (480k euros).

Am I missing something here? She died a month ago, but you're already in the process of selling the house and calculating inheritance tax? That doesn't add up. Have you already had the house valued? Can you sell the house before you get probate?

My grandfather died in late 2022 and probate only came through in late 2023 and the rest of the estate (which includes a house, shares, money etc.) is still being sorted out. I won't be declaring anything in Germany as it's a private and UK matter.
Even if I wanted to declare anything to the German authorities I wouldn't be able to as nothing is final.

The probate for a neighbour of his who died mid-2021, took more than two years to come through and the as far as we know the house could not be sold until the heirs had probate and even then it takes time to put on the market and find a buyer. It is still empty and for sale now in 2024.

Have you not got a solicitor who is dealing with the will and the estate for you? Or is the house already in your names?

If you are paying inheritance tax in the UK (and you don't know that yet) then you don't want to pay it elsewhere as well surely?

I definitely would not declare any of this in Germany as you could be tied up in paperwork for a couple of years! Even if you want to, you can't give any figures to Germany at this stage in any case as you have no idea of the exact amount you are actually inheriting - you don't know how much the house will sell for. You also don't know how much of the other money will be left after solicitors' fees, funeral expenses, other legacies are paid - it's a complicated process, especially if the estate is a substantial one.

[Auntie Helen]

I am sure you have looked into this from a UK perspective but are you sure IHT will be payable in the UK? Have you taken the Residence Nil-Rate Band and the possibility (if appropriate) of transferring any unused Nil-Rate Band and Residence Nil-Rate Band from the first-deceased?

Hi Gary, yes to both of these. We have all Mum’s nil-rate band and Dad’s nil rate band and the residence nil rate band from Mum. Dad died in 2016 so we have 100k residence nil rate band from him so we have 925k free of IHT.

Mum had a lot of savings and the house and it has just tipped us over into IHT territory, the bill will be about 45k in total.

[Fraufruit]

Auntie Helen, I'm sorry to hear about your mom.

I'm glad things seem to be pretty organized and hopefully not too much red tape to settle things.

Hugs.

[Auntie Helen]

My Mum died a month ago and I am the executor of her estate, along with my sister. There will be some inheritance tax to pay to HMRC which I am in the process of calculating.

And then suddenly I thought, "I live in Germany, do I also have to pay inheritance tax here?"

the money I inherit will be in pounds and I am inheriting half an English house (my sister gets the other half) that we are in the process of selling, and am paying inheritance tax directly to HMRC in the UK. I will probably get in total after inheritance tax about 410k pounds (480k euros).

Am I missing something here? She died a month ago, but you're already in the process of selling the house and calculating inheritance tax? That doesn't add up. Have you already had the house valued? Can you sell the house before you get probate?

My grandfather died in late 2022 and probate only came through in late 2023 and the rest of the estate (which includes a house, shares, money etc.) is still being sorted out. I won't be declaring anything in Germany as it's a private and UK matter.
Even if I wanted to declare anything to the German authorities I wouldn't be able to as nothing is final.

The probate for a neighbour of his who died mid-2021, took more than two years to come through and the as far as we know the house could not be sold until the heirs had probate and even then it takes time to put on the market and find a buyer. It is still empty and for sale now in 2024.

Have you not got a solicitor who is dealing with the will and the estate for you? Or is the house already in your names?

If you are paying inheritance tax in the UK (and you don't know that yet) then you don't want to pay it elsewhere as well surely?

I definitely would not declare any of this in Germany as you could be tied up in paperwork for a couple of years! Even if you want to, you can't give any figures to Germany at this stage in any case as you have no idea of the exact amount you are actually inheriting - you don't know how much the house will sell for. You also don't know how much of the other money will be left after solicitors' fees, funeral expenses, other legacies are paid - it's a complicated process, especially if the estate is a substantial one.

You cannot sell the house before you get probate but you have to pay IHT before probate. Which means you have to estimate the house value for probate (thus we had three valuations). We plan to pay the IHT as soon as we get the magic reference number (takes about 3 weeks, I applied for it a week ago) as I have already estimated the IHT. Obviously the final amount might change if the house sells for less or more, in which case we have to pay more or get a refund.

We are not doing this with a solicitor, we are doing it ourselves as my Mum requested. The gov.uk website is really good at explaining everything. I already have the figures except for a couple of savings accounts which have to calculate interest on the date of death. I know the legacies and the money is split in percentages to the relatives which is also easy to calculate. Funeral fees are paid, there are no solicitors fees…

I did Dad’s probate last time and we got that within 3 months of his death. This may take a little longer, but I expect it all to be finalised this year.

Of course I will notify Germany - there is no such thing as a private UK matter in this kind of thing as I am German resident. It looks as though there will be nothing to pay in DE though as I am already paying more in the UK.

[Escafusa]

I think it's a cheek that (in the UK) you have to pay inheritance tax before you get probate, some people might not even be in a position to do this.

Probate waiting times soared during the pandemic and have only been coming down slowly since as far as I am aware. I am assuming that the 3 months you had to wait for your father's estate was about the norm pre-pandemic(?), but I'd be surprised if it's already back down to normal. I hope though for your sake it is. As said, we recently waited about a year.

I'm also a resident of Germany and inherited (house and money), but I haven't notified anyone over here, apart from the fact, for me at least, it is a private and solely-UK matter, I wouldn't want the hassle, paperwork and possible taxes and fees involved over here. The money went into a UK account and the house is still in my grandfather's name and I'm not selling, so I don't see any issues - but then that's just me!

[Fraufruit]

"....it is a private and solely-UK matter,...."

I'm not so sure if the Finanzamt would agree. I'm sure Panda will weigh in.

[GaryC]

I am sure you have looked into this from a UK perspective but are you sure IHT will be payable in the UK? Have you taken the Residence Nil-Rate Band and the possibility (if appropriate) of transferring any unused Nil-Rate Band and Residence Nil-Rate Band from the first-deceased?

Hi Gary, yes to both of these. We have all Mum’s nil-rate band and Dad’s nil rate band and the residence nil rate band from Mum. Dad died in 2016 so we have 100k residence nil rate band from him so we have 925k free of IHT.

Mum had a lot of savings and the house and it has just tipped us over into IHT territory, the bill will be about 45k in total.

Good that you are picking up on the transfers but I wonder if you have misunderstood the way it works. The amount of RNRB and NRB you can transfer is the unused proportion, not a specific amount in £, that was not used at the time. This is the case, even if the first spouse died before RNRB was introduced on 6 April 2017, when the unused proportion is 100% as the RNRB did not exist when the first death occurred.

So, if all of your dad's estate went to your mum, an exempt transfer for IHT purposes, you would have 100% of his NRB and RNRB available to transfer, meaning that a total of £1m is outside the charge to IHT. You might still tip over the threshold but also take a close look at at the value of the chattels (furniture etc) as they are likely to be virtually worthless unless there are valuable antiques etc.

This page is useful https://www.gov.uk/guidance/inheritance ... -threshold

[Escafusa]

I'm not so sure if the Finanzamt would agree.

Indeed. I think I read that it's thought that a lot of overseas inheritances are never declared, although a lot would probably be tax-free in any case. And they estimate that about one in two owned properties overseas are never declared either. But quite frankly given how unnecessarily complex the tax system is and how high the actual taxes are here, none of that surprises me. Let sleeping dogs lie.

[GaryC]

I think it's a cheek that (in the UK) you have to pay inheritance tax before you get probate, some people might not even be in a position to do this.

Probate waiting times soared during the pandemic and have only been coming down slowly since as far as I am aware. I am assuming that the 3 months you had to wait for your father's estate was about the norm pre-pandemic(?), but I'd be surprised if it's already back down to normal. I hope though for your sake it is. As said, we recently waited about a year.

I'm also a resident of Germany and inherited (house and money), but I haven't notified anyone over here, apart from the fact, for me at least, it is a private and solely-UK matter, I wouldn't want the hassle, paperwork and possible taxes and fees involved over here. The money went into a UK account and the house is still in my grandfather's name and I'm not selling, so I don't see any issues - but then that's just me!

You may think it's a cheek to have to pay IHT, or at least start the process of paying it, before getting Probate but them's the rules. https://www.gov.uk/applying-for-probate ... %20account.

I would not ignore your tax obligations in Germany, which, as I understand them include declaring both the value of your inheritance and any income arising to the Executors in the UK during the period of administration. There is no such thing as a private and solely UK matter as you are tax resident in Germany and have to deal with both tax authorities under application of the double tax treaty. Personally, I would welcome a German tax investigation even less than I would an HMRC one as I believe tax offences in Germany are criminal in nature, whereas they are generally civil penalties in the UK. But that is for a German tax expert to opine on...

Also, if the house is still in the deceased's name, then the period of administration had not been concluded as the residue of the Estate has not been distributed - you cannot sell a house as a beneficiary of a Will, until you legally own it, which would not appear to be the case as it has not been transferred into your name. In this context, it is crucial to separate the legal persons who are (potentially you as) the Executor and you as a beneficiary. Each has legal duties and obligations, and Executors can face penalties if they fail to properly execute their legal duties.

The income arising to the Estate (bank interest, rental income etc) during the period of administration is taxed in the UK on the Executors without deductions or allowances. However, it is, ultimately, your income, though you received it from the Executors net of basic rate tax along with an R185 confirming the Executors have accounted for the tax to HMRC. For German tax purposes you are treated as receiving it in the year in which it was received by the Executors and would, I believe, be eligible for Tax Credit Relief under the UK/Germany DTA for the tax suffered in the UK. But Panda is our expert on that...

[Auntie Helen]

I am sure you have looked into this from a UK perspective but are you sure IHT will be payable in the UK? Have you taken the Residence Nil-Rate Band and the possibility (if appropriate) of transferring any unused Nil-Rate Band and Residence Nil-Rate Band from the first-deceased?

Hi Gary, yes to both of these. We have all Mum’s nil-rate band and Dad’s nil rate band and the residence nil rate band from Mum. Dad died in 2016 so we have 100k residence nil rate band from him so we have 925k free of IHT.

Mum had a lot of savings and the house and it has just tipped us over into IHT territory, the bill will be about 45k in total.

Good that you are picking up on the transfers but I wonder if you have misunderstood the way it works. The amount of RNRB and NRB you can transfer is the unused proportion, not a specific amount in £, that was not used at the time. This is the case, even if the first spouse died before RNRB was introduced on 6 April 2017, when the unused proportion is 100% as the RNRB did not exist when the first death occurred.

So, if all of your dad's estate went to your mum, an exempt transfer for IHT purposes, you would have 100% of his NRB and RNRB available to transfer, meaning that a total of £1m is outside the charge to IHT. You might still tip over the threshold but also take a close look at at the value of the chattels (furniture etc) as they are likely to be virtually worthless unless there are valuable antiques etc.

This page is useful https://www.gov.uk/guidance/inheritance ... -threshold

As I understand it, the full residence nil band for someone who died in 2016 is only 100k, not the 175k it would have been if they died after 2018. Dad’s estate all passed to Mum so 100% was available, it’s just that the house portion is capped at 100k.

This was also mentioned in a covering letter written to my Mum by the solicitor who drew up her will in 2022.

If I am wrong in that I would be delighted but gov.uk also gives the 100k figure.

[GaryC]

As I read the HMRC guidance, it is indeed the un-used "percentage" of the value of the RNRB at the date of the second death that can be transferred, not the amount in pounds, or a percentage, of the deemed pre-2017 £100,000.

Have look at https://www.gov.uk/guidance/inheritance ... -threshold

"Check when unused threshold may be transferred

[...]

Where the first of the couple died before 6 April 2017 their estate would not have used any of the residence nil rate band as it was not available. So 100% of this tax-free allowance will be available for transfer unless their estate was worth more than £2 million and the residence nil rate band is tapered away.

Calculate the available amount to transfer
It’s the unused percentage of the residence nil rate band that’s transferred, not the unused amount. This makes sure that if the maximum amount of residence nil rate band increases over time, the survivor’s estate will benefit from the increase in the threshold.

You calculate the actual amount that’s transferred to the surviving spouse or civil partner’s estate in 2 steps:

1. Work out the percentage of residence nil rate band that was not used when the first of the couple died. You do this by dividing the unused amount of threshold by the total that was available when the first of the couple died and multiplying the result by 100. If the person died before 6 April 2017 the unused residence nil rate band and total available are both deemed to be £100,000 so the unused percentage is 100%.

2. Multiply the percentage of unused residence nil rate band when the first of the couple died by the maximum residence nil rate band available at the time of the survivor’s death. This gives you the sum available to transfer."

The example that follows the above text, clearly shows that 100% of the current amount of the RNRB is available for transfer where the first spouse died before 2017.

So, as I read it, your mother's estate can claim to transfer 100% of your father's estate's deemed RNRB, based on the value of the RNRB at the date of her death, i.e. £175,000. 100% of £175,000 is £175,000, so this could be the quickest £30,000 in cash terms you have ever made (£75,000 x 40%), lol

[Auntie Helen]

Gary, this is really interesting and I see what you are saying.

I need to investigate further when at my proper computer, but I was assuming I was transferring the £100,000, not the 100% availability. So this looks very interesting! If we get the full amount from both parents we will only be paying IHT on about 15k (shared between two of us). Which might mean I do pay a bit to Germany then but I don’t mind.

[GaryC]

I can understand that - it is complex and, of course, the whole process changed for at least the first death from 2023 to make it easier and reduce the number of simplified IHT Reports that are needed. It's IHT400 or nothing now... I helped a friend deal with the Estate when her husband died and read more about these issues than I care to admit.

Helping her prompted me to write a document for when the first, and then second, of us "pegs it", to ease the process for those who have to pick up the pieces. I learned snippets like, don't tell the bank about the death until you are ready as they will immediately close accounts and linked credit cards. My bank told me that some people leave it up to 3 years before telling them and they are fine with that (assuming the administration takes that long, of course). Then there is a whole section on IHT and Probate, a list of where all bank etc accounts are, what to do with ISAs and then all those online accounts that need dealing with, etc, etc, etc. It has exploded to about 50 pages but well worth doing...

[Escafusa]

don't tell the bank about the death until you are ready as they will immediately close accounts and linked credit cards

Accounts are usually frozen when the bank is notified that the holder has died, not closed. The account can only be closed later when all of the money has been paid out.
When my grandfather died in late 2022 the bank froze his current account when my aunt notified the bank. That account has yet to be closed.
We had the same experience with my late grandmother's account, although since probate wasn't needed in her case it didn't take as long.

[Auntie Helen]

Gary, this inspired me to go through and start filling in the forms...

And you were right! When I filled in the forms exactly as they required I ended up with RNRB for Dad (who died in 2016) of 175k.

I was on a roll so filled in IHT402, IHT405, IHT435 and IHT436 (except for the missing Inheritance Tax Reference Number which should come soon). I had already filled in most of IHT400.

I only have IHT406, IHT407, IHT408, IHT409, IHT410 and IHT411 to go, but I am waiting a bit longer for these till I get the official values from the various banks/building societies. They are slowly sending them through (I have 16 out of 24, so am nearly there).

Thanks Gary, you saved me 30k!