Inheritance and Gifts – Tax Advantages Through Early Planning

Transferring assets through inheritance or gifts requires careful planning in order to achieve significant tax advantages. German inheritance tax law has changed frequently in recent years and remains highly debated. One of its key characteristics is that different types of assets are taxed differently in the event of inheritance.

Allowances for Inheritance and Gifts

Tax allowances can be used effectively with prudent estate planning. It is important to note that these allowances apply to a 10-year period. This means that assets up to the allowance amount can be transferred tax-free every 10 years.

The current allowances in Germany are:

What Happens in Cross-Border Inheritance or Gifts?

If inheritance or gifts involve foreign countries, special rules must always be considered.

A cross-border situation may exist if:

• one person involved has their main residence abroad and the other in Germany,
• both persons live abroad but assets in Germany are transferred (e.g., real estate),
• both persons live in Germany but assets located abroad are transferred.

In such cases, tax law in both countries must be considered and, if applicable, any double taxation agreements relating to inheritance or gifts.

Germany does not distinguish between gifts and inheritances when it comes to tax allowances. The allowances listed above apply to both, but only within a 10-year period.

Denmark, however, distinguishes between gifts and inheritances. The annual gift allowance is currently 74,100 DKK (as of 2024), which corresponds to approximately €9,950.

For example, if someone gives their child €100,000 as a gift while the child lives in Denmark, no gift tax would be due in Germany, but Danish gift tax would apply to approximately €91,000.

Planning Ahead Is Important. It is important that the person making the transfer considers these matters early.

Once the decision has been made, we can work together — often in cooperation with experienced lawyers — to develop a solution that meets all requirements while keeping the tax burden as low as possible. Feel free to contact us by email or phone.

Depending on the type of assets and the planned structure, it may also be beneficial to transfer the entire estate through a family holding company.