Inheritance tax: BFH strengthens the rights of legatees with a flat rate

Not only heirs, but also legatees can reduce their inheritance tax with the inheritance tax allowance. The BFH made this clear. Another allowance is often overlooked.

Frankfurt. State revenue from inheritance and gift taxes has reached a new record. As the Federal Statistical Office announced on Wednesday, the tax authorities set 21.4 billion euros last year. Compared to the previous year, this is an increase of almost 61 percent. This was based on transferred assets amounting to around 141 billion euros.

According to the statisticians, the reason for the sharp increase in taxation was very large wealth transfers of at least 20 million euros. Company shares and business assets played a major role. However, the figures only show a small part of the total assets transferred in Germany, because most inheritances and gifts are within the tax allowances.

To ensure that as much wealth as possible reaches the heirs, tax experts recommend early succession planning. Possible deductions such as the inheritance cost allowance should be included in the inheritance tax return. This was increased from 10,300 to 15,000 euros in 2025.

The Federal Finance Court (BFH) has clarified who is allowed to use it and what requirements must be met in a recently published ruling. Two tax experts explain what the ruling means for heirs and legatees and what additional allowance heirs can use to save taxes.

In the case decided by the Federal Finance Court, the testator lived in Great Britain. Her brother, who also lived in Great Britain, became the heir. Her niece, who lives in Germany, received 50,000 British pounds – around 58,300 euros – as part of a bequest.

In her inheritance tax return she claimed the flat rate inheritance costs. She is entitled to this in full since she is the only purchaser liable to tax in Germany in this inheritance case. However, the tax office did not take the lump sum into account, and the Lower Saxony Finance Court only allowed a proportional deduction of the lump sum in the subsequent proceedings. Otherwise the buyer would be “excessively” favored, according to the judges.

The BFH, on the other hand, agreed with the legatee (ref.: II R 25/23). The following generally applies: The lump sum amount can only be applied once per inheritance. If there are several purchasers in an inheritance case, the lump sum must be divided between them. However, if only one person is subject to German taxation - such as the legatee in the case of the dispute - the lump sum is not divided and is not reduced.

According to the BFH judges, a reduction would result in the reduction amount being forfeited. And the law (Section 10 Paragraph 5 No. 3 Sentence 2 ErbStG) does not provide for this. The flat rate also serves to simplify taxes. Proof that costs were actually incurred is not required. The BFH had already decided this in 2023 (ref.: II R 3/20).

Daniela Karbe-Geßler, tax expert at the Taxpayers' Association (BdSt), welcomes the ruling. “It is positive that the BFH emphasizes the legal equal treatment of heirs and legatees,” she says and also emphasizes the goal of tax simplification. “That’s why it’s right and important that no actual costs have to be proven in order to deduct the flat rate,” says Karbe-Geßler.

But deducting the flat rate is not always the cheapest option. “Inheritance costs often amount to more than 15,000 euros,” says Agnes Fischl, tax advisor and lawyer at the Schütz & Fischl law firm. Then these should be claimed.

According to the law, the costs for the burial of the testator, for an appropriate grave monument, for the usual grave care “as well as the costs that the purchaser incurs directly in connection with the processing, regulation or distribution of the estate or with obtaining the acquisition” are deductible.

In addition to the flat rate inheritance costs, heirs can save inheritance tax with the care allowance. “This is often forgotten, but many people are entitled to it,” says Fischl. According to Section 13 Paragraph 1 No. 9 ErbStG, up to 20,000 euros are spared from inheritance tax. “The term care is defined quite broadly,” says Fischl.

The BFH confirmed this in 2013 (ref.: II R 37/12). Accordingly, care includes “the regular and long-term care for the physical, mental or spiritual well-being of a person in need of help due to illness, disability, age or another reason”.

According to the BFH, the granting of a care allowance requires “that care services have been provided regularly and over a longer period of time, go beyond the usual level of interpersonal help and have a monetary value in general transactions”.

“So it’s about services for which you could also commission a nursing service,” says Fischl. “To calculate the personal care allowance, you should consider how many hours you cared for a person in the years before their death and set 15 euros per hour,” says Fischl. Unlike the inheritance cost allowance, the care allowance is granted per inheritance and not per inheritance.

According to the BFH, a “generous standard” must be applied when assessing whether the requirements for tax exemption are met. In addition, the allowance can also be granted if the testator was housed in a nursing home.