Those who lack the funds to purchase their own home might be glad to inherit a property – if this is indeed the only way of making the dream of home ownership a reality. However, this dream can prove expensive. The property may still have a mortgage running on it. Inheritance tax can also prove costly if the value of the property exceeds the tax-free allowance.
When property is inherited, it is fundamentally subject to inheritance tax. However, different levels of tax obligations apply depending on the degree of kinship. If the value of the property does not exceed the tax-free allowance and if the property is to be owner-occupied, it is generally the rule that no inheritance tax must be paid. Spouses and children are also exempt from the tax if they use the property themselves for a minimum of 10 years. However, the property must be valued by a professional estate agent to establish its worth and thus whether it exceeds the tax-free allowance.
How is the level of inheritance tax calculated?
Let us take an example: you have inherited a property from your uncle. As a niece or nephew, your tax-free allowance is 20,000 euros. Given that professional estate agents always take account of the current housing market, you have asked one to value the property. The property is worth 270,000 euros. Minus your tax-free allowance, you must pay tax on 250,000 euros. The inheritance tax for nieces and nephews is set at 25 per cent. This means that you must pay 62,500 euros in inheritance tax.
Are there any co-heirs?
You might not be the sole heir to the property. In this case, you are part of a “community of heirs” and must share the inheritance with your co-heirs. You have to come to an agreement with them. If you wish to keep the property, you will generally have to buy out your co-heirs. Let us assume there are two other heirs; in this case, you and your two fellow co-heirs are each due a third of the property. In order to know how much a third is worth, it is once more recommended to have the property valued by an expert. If we stay with our example of a property worth 270,000 euros, then you must pay each of your two co-heirs 90,000 euros to become sole owner of the property.
Beware of mortgages
Even if you don’t have to pay any inheritance tax, you may be faced with hidden costs in the form of a mortgage you are unaware of. In this case, you inherit not only the property but also the debt to the bank. It might also be the case that the property has not yet been fully paid off. In this instance, you also become responsible for paying the outstanding debt.
Are you uncertain what to do with your inherited property? Get in touch with us! We are happy to advise you.
Didn’t find the answer here? Then please read here:
https://www.steuerklassen.com/erbschaftssteuer/
https://de.wikipedia.org/wiki/Erbschaftsteuer_in_Deutschland
Legal note: This article does not constitute tax or legal advice in individual cases. Please have the facts of your specific individual case clarified by a lawyer and/or tax advisor.
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