When evaluating inheritance transactions with cross-border implications, a distinction must be made between inheritance law and inheritance tax law. Inheritance transactions subject to foreign inheritance law may also be subject to inheritance tax in Germany. Such a case was decided by the Supreme Tax Court in a situation where the beneficiary was resident in Germany whilst her deceased father was an Italian citizen and resident there.
The Supreme Tax Court has referred to the ECJ on a refusal to grant the same inheritance tax allowance on a holding in Canada that would have been available on a domestic investment.
If a gift is subject to inheritance tax under foreign law (here: Switzerland) because the donor dies within a short period of time after the donation, the tax is to be credited against the German gift tax pursuant to Section 21 Inheritance Tax and Gift Tax Act. With this decision, the Duesseldorf Tax Court upheld the claim of the plaintiff, who had residences both in the Canton of Lucerne and in Germany.
According to the Supreme Tax Court in its judgment of 11 July 2019 – (II R 38/16), published on 28 November 2019, the inheritance tax exemption on the inheritance a family home by the surviving spouse or civil partner will not apply retroactively where the surviving spouse/partner transfers ownership of the family home to a third party within ten years of acquisition.
The Supreme Tax Court has now finally ruled that the German inheritance tax privilege relieving repeated transfers within the same family should not be extended to previous transfers taxable in another member state.
Inheritance tax is currently receiving increased attention. The discussion is being shaped by both legal questions and an increasingly lively political debate. Particular focus is being directed towards the various proceedings that have been pending before the Federal Constitutional Court for several years.
The Supreme Tax Court has held that an asset transfer on death is chargeable to inheritance tax under German law, even though its basis was a foreign legal act without an exact German parallel but leading to exemption in the foreign state of residence of both parties.
In a recent judgment the Supreme Tax Court decided that a family foundation established in the Swiss Confederation and with its administrative headquarters in Germany is not subject to substitute inheritance tax in Germany as it is a foundation without legal capacity.
The Constitutional Court has rejected for lack of prospects for success a case claiming that the future income tax due from the heir on interest earned but not yet due on the date of death of the testator be deducted from the inheritance tax base as a charge on the estate.
If spouses set up a bequest in the form of a so-called Berlin will (Berliner Testament) for children who do not claim their compulsory portion upon the death of the first deceased, the surviving spouse as the heir of the first deceased cannot deduct the bequest as a liability, as the bequest is not yet due. In a recent ruling, the Supreme Tax Court also held, that the child as successive heir must pay inheritance tax on the final legacy as it originates upon the death of the surviving spouse.
According to a decision of the Supreme Tax Court, the 5-year preferential period in Section 35b sentence 1 of the German Income Tax Act starts at the time the inheritance tax arises, which is generally upon the death of the testator. This also applies if it was not possible to claim the tax reduction in due time by reasons for which the taxpayer could not be held responsible.
According to the decision of the European Court of Justice (ECJ), the different inheritance tax allowances in the case of unlimited and limited tax liability is in line with EU law, specifically it is not in breach of the free movement of capital. However, the refusal of the German tax office to deduct liabilities linked to the inheritance in the case of limited tax liability is not compatible with EU law.
If the founder of an Anglo-American trust, validly established under Guernsey law, has not reserved any powers of control that would allow him to continue to freely dispose of the assets held in the trust, the assets concerned are legally considered to be independent (intransparent) and are not part of the founder's inheritance (legacy) upon his death. Inheritance tax is therefore not payable in such cases, the Tax Court of the state of Schleswig-Holstein said in a final decision.
According to a decision of the Supreme Tax Court, the inheritance tax exemption granted to the surviving spouse upon acquisition of the family home must not be revoked retroactively if its continued use for own residential purposes is impossible or unreasonable due to health reasons. The same applies to the tax exemption granted to children as heirs, the BFH said in another judgment from the same date.
In a most recent decision, the European Court of Justice held that the German inheritance tax regime that distinguishes between assets located in the domestic territory, in a Member State of the European Union or in the EEA or, alternatively, in a third country, is a restriction on the free movement of capital and cannot be justified by overriding reasons relating to the public interest.
In identical decrees issued by the Supreme Tax Authorities of the Federal States, the tax authorities comment upon the judgment of the Supreme Tax Court of 26 July 2022 (II R 25/20) and upon the underlying view that the option relief under Section 13a (10) Inheritance Tax and Gift Tax Act (or Section 13a (8) IHTA old version) can be exercised separately for each economic unit transferred. This applies to all open cases.
In its decision of 6 June 2025 (II B 43/24 (AdV)) the Supreme Tax Court held that, upon summary examination, it was seriously doubtful whether contributions made by a shareholder to the capital reserve of a limited liability company (GmbH) lead to a taxable increase in the value of the shares of the co-shareholders within the meaning of Section 7(8) Sentence 1 of the Inheritance Tax and Gift Tax Act (“IHTGTA”) if the shareholders agree that the contributions are to be allocated to the contributing shareholder.
In its committee meeting today (14 October 2016) the Federal Assembly (Bundesrat) approved the Gift Tax and Inheritance Tax reforms. With the majority approval of the Bundesrat, the new rules regarding the beneficial tax status of business heirs can be introduced.
In a most recently published decision, the Supreme Tax Court held that the transfer of the tax privilege for business assets, rented residential property and family homes among co-heirs requires that the assets are conveyed in the course of the division of the estate. The transfer would not be privileged if the decision to divide the estate and thereby transfer preferential (business) assets in exchange for non-preferential assets is based on a new decision of the community of heirs, when initially they deliberately left the estate undivided.
An ECJ advocate general has suggested the court extend its earlier rulings against lower personal allowances to heirs in other member states to residents in third countries.
