The property values increase and increase. The allowances for inheritance and gift tax, on the other hand, remain constant. Planning ahead makes sense.
I would like to show you examples of how you can take advantage of allowances for inheritance and gifts and thus save taxes.
Example: Georg is self-employed. He is married to Martina. You have the daughter Cornelia. Georg has a rented commercial building near Frankfurt for 500.000 € acquired. The rental income serves as retirement provision for Georg and his wife. The value of the house is now 700.000 €, the trend is upwards. The spouses have agreed on the separation of property in the marriage contract and have drawn up a Berlin will: The spouses inherit each other. If both are no longer around, daughter Cornelia inherits alone.
Georg passes away. The house gets alone his wife Martina. The tax office approaches Martina and demands inheritance tax. Martina, as wife, has a tax allowance of 500.000 €. 200 on the amount exceeding this allowance.000 she pays inheritance tax of 22.000 €. When Martina later dies, the daughter Cornelia inherits the house. It has an allowance of 400.000 €. For the excess amount of 300.000 Cornelia pays inheritance tax of 33.000 €.
In total, the family has set aside 55.000 € inheritance tax paid. If the family only has small savings, they have to take out a loan to pay the inheritance tax and secure it with a land charge on the property.
How can this result be avoided?
There are several options:
Regulation by will
The spouses make these testamentary arrangements: They appoint each other as sole heirs. In addition, Georg bequeaths to his daughter Cornelia a co-ownership share in the house of ½. The value of this co-ownership share is 350.000 €. If Georg dies first, the wife Martina receives a ½ – share of the business house, the daughter Cornelia likewise. Martina and Cornelia inherit thus 350 each.000 €. These values are below the wife's tax-free amount of 500.000 € and below the daughter's allowance of 400.000 €. If Martina dies, Cornelia inherits ½ of her estate. Share. She has after her mother also an allowance of 400.000 € and thus does not have to pay inheritance tax.
Result: the house is inherited within the family without incurring inheritance tax.
Not only the inheritance tax is to be considered: Martina is to be entitled to the rental income alone to provide for her old age. Georg therefore bequeaths a usufructuary right to the entire property to his wife in the will. The usufructuary right gives the usufructuary, i.e. Martina, the right to continue to use the property alone. Thus, Martina is entitled to the entire rental income and is provided with.
Martina dies first. According to the will, Georg is the sole heir. Inheritance tax on the house does not apply, since the house belongs to Georg. If Georg dies later, Cornelia inherits the entire house and pays inheritance tax of 33.000 €.
Result: If Georg dies first, no inheritance tax is payable on the inheritance of the house. If, on the other hand, Martina dies first, inheritance tax of 33% is payable on the inheritance of the house within the family.000 € to. However, this is still a lot less than the inheritance tax burden of 55.000 €, if there are no suitable testamentary provisions.
Provision can also be made for this case and the inheritance tax of 33.000 € can be avoided:
Transfer during lifetime to the spouse
Transfer of a ½ – share of co-ownership to the wife
Georg transfers a ½ – share in the business house to Martina. Gifts between spouses are also subject to gift tax. The tax-free amount is the same as for inheritance tax 5000.000 €. The value of the ½ – share in the property is below the tax-free amount of 500.000 €. He retains a usufructuary right so that he can continue to receive the rental income for his old age. Further advantage of the usufructuary right. It can be deducted from the value of the property.
Example: The property is worth 1.2 million euros. If Georg transfers a ½- share to Martina, she receives assets amounting to 600.000 € donated. This exceeds her tax-free amount of 500.000 €, so that she will pay gift tax of 11.000 € would have to be paid. Georg retains the right of usufruct, the value of the right of usufruct is deducted. Assuming a value of the usufructuary right of 150.000, Martina receives assets for tax purposes amounting to 450.000 €. The tax value of the property is less than the exemption amount of 500.000 €. She does not have to pay gift tax.
Provisions for the event of divorce can be included in the transfer agreement.
Instead of a Berlin will, the spouses make the following arrangements: If one spouse dies, the daughter Cornelia receives his ½- co-ownership share in the property. The surviving spouse receives a usufructuary right. If the surviving spouse dies, Cornelia also receives his or her co-ownership share.
Consequence: If Martina dies first, Cornelia receives her ½- co-ownership share in the property worth 350.000 €. Cornelia therefore receives an asset value of 350.000 €. Thus, the taxable value of the ½- share is below 400.000 €. Cornelia does not have to pay inheritance tax. In addition, the value of Georg's usufructuary right is deducted from the value of the real estate, so that even if the value of the real estate is higher, no inheritance tax is payable.
Family home
If a so-called. Family home transferred, further tax advantages apply.
Example: The married couple Martina and Georg live in a spacious single-family home near Frankfurt. The value of the house is 700.000 €. The spouses have agreed on the separation of property in the prenuptial agreement and have drawn up a Berlin will: The spouses inherit each other. If both are no longer there, the daughter Cornelia inherits alone.
Georg dies. The house goes to his wife Martina alone. If she stays in the house for 10 years, the family home is exempt from inheritance tax. When Martina later passes away, her daughter Cornelia inherits the house. If Cornelia also lives in the family home for 10 years, she also does not have to pay inheritance tax. Another condition for tax exemption: the living space of the family home must not exceed 200 sqm.
If the real estate is not inhabited for the entire 10 years, inheritance tax is incurred in the same way as explained above for the inheritance of the commercial building. In order to be able to claim the tax exemption for the family home, the heir must move in immediately after the inheritance takes place. The case law of the Federal Fiscal Court interprets this term strictly. Cornelia lives in Frankfurt and moves into the family home. Three years later she is transferred to Munich by her employer. She therefore moves to Munich. Consequence: The tax authorities consider this as non-compliance with the obligation to occupy the family home for 10 years. Cornelia pays the full inheritance tax.
Conclusion: Even with family homes, it makes sense to make suitable arrangements for inheritance and gift tax ahead of time.
Georg therefore makes a bequest to his daughter Cornelia in his will: She receives his ½ – share of the family home. Martina and daughter Cornelia thus each have a ½- co-ownership share in the house.
Between Martina and the daughter Cornelia it comes to disagreements. Cornelia wants to turn her share of the house into cash. Selling a 1/2 share is difficult. However, as a co-owner, she can apply for a partition auction, a form of compulsory sale. Consequence: The house is auctioned. How can Martina and Georg prevent this from happening in the first place?? In his will, Georg bequeaths to his wife a lifelong, gratuitous right to live in the house. So that the house does not go to a third party during his lifetime, the right to sell the house during Martina's lifetime is excluded in the will.
The house is large, as is the garden. Martina cannot and no longer wants to manage this in old age. She should therefore be able to rent out the house so that she can use the rental income to rent a smaller, low-maintenance and possibly barrier-free apartment. Therefore, Georg bequeaths to his wife, instead of a residential right, the sog. usufruct right. In this way, Martina can not only occupy the property, but also rent it out and use the rental income to finance a smaller and lower-maintenance apartment.
Transfer during his lifetime to the children
The commercial building has a value of 1 million. The widowed Georg is the sole owner and transfers a 1/2 share to his daughter Cornelia during her lifetime. He retains the usufructuary right to the property. Cornelia thus receives assets of 500.000 €. Assuming a value of the usufructuary right of 200.000 €, Cornelia receives assets for tax purposes in the amount of 300.000 €. The tax value of the property is therefore less than the exemption amount of 400.000 €. So she does not have to pay gift tax.
Cornelia is entitled to this allowance every 10 years. Georg can therefore transfer the further co-ownership share to Cornelia 10 years later, again subject to the reservation of usufruct.
Conclusion: With skilful testamentary regulations and the correctly designed transfer of real estate during one's lifetime, inheritance and gift tax can be greatly reduced or even completely avoided. This is more important than ever, especially in times of rising real estate prices.