Unlike some countries, Germany taxes inheritances directly at the level of each individual heir, not the estate as a whole, under the Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG). How much tax is owed — if any — depends heavily on the heir's degree of kinship to the deceased, which determines both the tax-free allowance and the applicable tax rate.
The Three Tax Classes
The ErbStG assigns every heir to one of three tax classes (Steuerklassen, § 15 ErbStG), based on their relationship to the deceased:
- Tax Class I — spouse or registered civil partner, children and stepchildren, grandchildren, and (on inheritance, though not on lifetime gifts) parents and grandparents;
- Tax Class II — siblings, nieces and nephews, parents and grandparents (in the case of a lifetime gift rather than inheritance), in-laws, and a divorced spouse;
- Tax Class III — everyone else, including unrelated partners, friends, and unmarried life partners without a registered partnership.
Tax-Free Allowances
Before any tax is calculated, each heir is entitled to a personal tax-free allowance (Freibetrag, § 16 ErbStG), which depends on their relationship to the deceased:
- spouse or registered civil partner: €500,000;
- children and stepchildren, and children of a predeceased child: €400,000;
- grandchildren: €200,000;
- parents and grandparents, when inheriting (Tax Class I): €100,000;
- everyone in Tax Class II or III: €20,000.
A surviving spouse and, in a smaller amount, minor children are also entitled to an additional maintenance allowance (Versorgungsfreibetrag, § 17 ErbStG) on top of the standard allowance — €256,000 for a spouse, and up to €52,000 for a child under 5, decreasing as the child's age increases.
The allowances reset every 10 years — gifts and inheritances between the same two people are added together only within a rolling 10-year window, which can make it worthwhile to plan lifetime gifts well in advance rather than transferring everything through inheritance at once.
Tax Rates
Once the allowance has been deducted, tax is charged on the remaining value at a rate that rises with both the size of the inheritance and the tax class:
- Tax Class I: from 7% (up to €75,000) to 30% (over €26 million);
- Tax Class II: from 15% to 43%;
- Tax Class III: from 30% to 50%.
Special Rules for Household Goods and Business Assets
Beyond the general allowance, Tax Class I heirs can also inherit household goods and personal effects worth up to €41,000 tax-free, plus a further €12,000 for other movable property (§ 13 ErbStG); heirs in Tax Class II and III share a combined €12,000 allowance for both categories. Business assets, agricultural property, and an owner-occupied family home passed to a spouse or child (who continues to live in it for at least 10 years) can also benefit from significant additional relief, subject to detailed conditions.
Conclusion
How much inheritance tax is ultimately owed in Germany depends heavily on the heir's relationship to the deceased and on careful use of the available allowances and reliefs. We can help you calculate the likely tax exposure for a specific estate, structure lifetime gifts to make the most of the 10-year allowance cycle, and file the required inheritance tax return.
This article is for general information only and does not replace individual legal advice.
This article is for general information only and does not replace individual legal advice.
