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Market & Figures

Inherited property – now threatened by inheritance tax
A sale is often the best solution
Inherited property – now threatened by inheritance tax
A sale is often the best solution
Despite the death of a close relative, an inheritance is usually something pleasant – but the German inheritance tax due on it is not. There are relatively high tax-free amounts of 500,000 and 400,000 euros for spouses and children. But in the case of apartment buildings these are quickly exhausted. A new regulation from the beginning of the year, however, now leads to a higher valuation. Fatal in view of the drastically risen prices for real estates in the past years.
inheritance tax
Allowances should still be sufficient for owner-occupied apartments, but by no means if one inherits several apartments or a whole housing estate. Then, depending on the constellation, tax bracket and value, 15 to 19% inheritance tax may well be due, and even 23 or 27% for values of 13 million euros and 26 million euros. For more distant relatives, the tax office charges 30 to 50 % inheritance tax on real estate. No wonder that the regulation – which is part of the Annual Tax Act 2023 and came along rather inconspicuously, one could also say: hidden – caused great unrest among real estate owners, (potential) heirs and associations.

Selling inherited property

It is also of no use that the German Federal Minister of Finance, Christian Lindner, replaced the head of department responsible for this a few weeks ago. Since the tax-free amounts have not increased and seem to have been fixed since 2009, there is now a threat of drastic tax increases. Only 200 square meters of living space are tax-free if an heir lives in the property for at least ten years after the inheritance. This is of little help in the case of an inherited residential house.

Responsible for the higher valuation are the changed valuation factors and this affects all types of real estate: owner-occupied apartments and houses, rented properties and also business properties. The core problem is that property values have risen sharply in recent years, and even significantly depending on the region, city and location. The changed valuation procedure is now likely to make looking at the tax bill even sadder or even scary, especially since, depending on the value, the next progression level can also be reached. Many will not be able to afford the tax. After all, one has not inherited cash, but a house in which possibly nothing has been invested for a long time. The only way out is then to sell.

Apartment houses

Higher inheritance tax on real estate

Kai Warnecke, president of the German real estate association Haus & Grund, says: “On the one hand, the revaluation means that many more people will be liable for inheritance tax. And on the other hand, according to our calculations, most heirs will have to pay around 50 to 100% more inheritance tax than before.” On his behalf, the opinion research institute Civey conducted a survey among property owners and future heirs. The core result: 37.5% of respondents fear having to sell their property because of inheritance tax.

Those who want to keep the real estate could now take out a loan. But on the one hand, interest rates have multiplied. For another, banks have tightened requirements for borrowers. Also, much more paperwork and evidence must be provided than a few years ago. Anyone who successfully manages all this may have to increase rents to pay off the loan. But then there will be no money for maintenance.

An inheritance tax on residential buildings within Berlin’s S-Bahn ring or inner-city locations whether Düsseldorf, Cologne or Munich can quickly reach a value in the millions, especially for nieces, nephews and even more distant relatives. This cannot be financed with rental income alone. A sale would be the next logical step, especially if one has had little to do with management, renting or even energy-efficient refurbishment. However, if the property is to be sold, it is not necessary to involve a real estate agent. Real estate companies and investors prefer to buy directly. This saves both sides the broker’s fee – and more of the inheritance remains.

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