Inheritance tax and German citizenship

[Alberto]

What is the impact of having German citizenship on tax, or more specifically on inheritance tax?

I'm Italian and my wife is Japanese, and we reside in Germany.

I expect one day I will likely inherit some from my mum. It'll be less than the current 1M€ Italian threshold, so no payment there with current rules.
But it'll be perhaps a little more than the present 400k€ German threshold. So with current rules I expect paying some tax in Germany.
How would things be different if I had dual citizenship DE and IT.

Thank you

[PandaMunich]

What is the impact of having German citizenship on tax, or more specifically on inheritance tax?

I'm Italian and my wife is Japanese, and we reside in Germany.

I expect one day I will likely inherit some from my mum. It'll be less than the current 1M€ Italian threshold, so no payment there with current rules.
But it'll be perhaps a little more than the present 400k€ German threshold. So with current rules I expect paying some tax in Germany.
How would things be different if I had dual citizenship DE and IT.

If you live in Germany, you have to pay inheritance tax, no matter what your nationality is.

The only disadvantage to taking on German citizenship would be a lagging gift and inheritance tax liability:
If a German citizen moves away from Germany, he has to pay German inheritance/gift tax (or his heirs have to, if he dies) for up to 5 years after he moved away, see § 2 (1) Nr. 1 b) ErbStG: https://www-gesetze--im--internet-de.tr ... r_pto=wapp

[Alberto]

Alles klar, thanks.

[Emkay]

I enquired after my mother’s death. If you inherit a little over the 400k€, the tax rates increase relatively minimally over the tax free amount. Some costs can be deducted such as funeral costs, debts of the deceased, estate administration costs, property maintenance prior to transfer to heir etc.

Class I (over 400k€ as child)…..
• Up to €75,000 → 7%
• €75,001 – €300,000 → 11%
• €300,001 – €600,000 → 15%
• €600,001 – €6,000,000 → 19%
• €6,000,001 – €13,000,000 → 23%
• €13,000,001 – €26,000,000 → 27%
• Over €26,000,000 → 30%

It’s important to get a proper property valuation as soon after death as possible. I was advised that this valuation is solely relevant. Even if you eventually sell for more at a later date.

[kiplette]

That's extremely helpful, emkay. Getting an immediate evaluation makes sense when you point it out.

[PandaMunich]

It’s important to get a proper property valuation as soon after death as possible. I was advised that this valuation is solely relevant. Even if you eventually sell for more at a later date.

For a flat or for a house (a house for one family or one for two families, i.e. for a Einfamilien- oder Zweifamilienhaus) the Finanzamt will want to use the value based on the Vergleichswertverfahren: https://www.haufe.de/finance/haufe-fina ... 27883.html

Only a certified Sachverständiger/Gutachter (this is set down in § 198 (2) Bewertungsgesetz) can issue a Gutachten with a lower property value that will supersede the value the Finanzamt will want to use.

• (2) Als Nachweis des niedrigeren gemeinen Werts kann regelmäßig ein Gutachten des zuständigen Gutachterausschusses im Sinne der §§ 192 ff. des Baugesetzbuchs oder von Personen, die von einer staatlichen, staatlich anerkannten oder nach DIN EN ISO/IEC 17024 akkreditierten Stelle als Sachverständige oder Gutachter für die Wertermittlung von Grundstücken bestellt oder zertifiziert worden sind, dienen.

• (2) An appraisal by the competent expert committee within the meaning of Sections 192 et seq. of the German Building Code or by persons who have been appointed or certified as experts or appraisers for the valuation of real estate by a state, state-recognised or DIN EN ISO/IEC 17024 accredited body may regularly serve as evidence of the lower fair market value.

The other possibility to use a lower value in the inheritance tax return (or in a gift tax return) than the one the Finanzamt will want to use, is to sell the property at that lower price within 1 year of the date of death (of the date of donation in case of a gift), this is laid down in § 198 (3) BewG: https://www.gesetze-im-internet.de/bewg/__198.html

• (3) Als Nachweis des niedrigeren gemeinen Werts kann ein im gewöhnlichen Geschäftsverkehr innerhalb eines Jahres vor oder nach dem Bewertungsstichtag zustande gekommener Kaufpreis über das zu bewertende Grundstück dienen, wenn die maßgeblichen Verhältnisse hierfür gegenüber den Verhältnissen am Bewertungsstichtag unverändert sind.

• (3) A purchase price realised in the ordinary course of business within one year before or after the valuation date for the property to be valued may serve as evidence of the lower fair market value if the relevant circumstances for this are unchanged from the circumstances on the valuation date.