Frankfurt. When a loved one dies, very few people immediately think about reporting to the tax office. But anyone who misses the deadline can, in the worst case scenario, be accused of tax evasion.
“Many heirs assume that the tax office will automatically be informed about the estate,” says Agnes Fischl, tax advisor and specialist lawyer in inheritance law from Munich. “But that is often not correct.”
Although not all heirs have to submit an inheritance tax return, they do have to report their inheritance to the tax office. However, there are some pitfalls. You should avoid the following ten mistakes.
1. Error: Don't show inheritance
The basic rule is: Anyone who receives assets through an inheritance must report the acquisition to the tax office responsible for inheritance tax within three months of becoming aware of it. After receiving the notification, the tax office checks whether it requests an inheritance tax return. “A period of at least one month is granted for the preparation of the inheritance tax return,” says Meik Eichholz from the Federal Chamber of Tax Advisors.
The inheritance can be reported with an informal letter or using a form “Notification of an acquisition due to death (according to Section 30 ErbStG)”, which the tax authorities of the individual federal states provide.
However, there are exceptions. If there is a will for the inheritance that is opened by a German court, a German notary or a German consul and which clearly shows the relationship between the heir and the testator, an heir does not have to inform the tax office himself.
However, if you inherit real estate, business assets, certain shares in corporations or foreign assets, there is an obligation to report. “At the same time, there is no penalty for simply failing to report an inheritance,” says Fischl. It's not even a misdemeanor.
According to the tax advisor, this follows: “Anyone who is completely sure that the inheritance does not exceed the tax-free allowance does not have to fear any penalty if they do not report an inheritance.” However, anyone who underestimates the value of an inheritance and thereby avoids inheritance tax can, in the worst case, be confronted with accusations of tax evasion.
2. Error: Report inheritance to the wrong tax office
Which tax office is responsible for the inheritance depends on the last place of residence of the deceased. However, it is not the tax office where the testator submitted his income tax returns, but a special inheritance tax tax office to which the tax office district has been assigned.
In Hesse, for example, there are three inheritance tax tax offices, in Fulda, Kassel and Wetzlar, which are responsible for the districts of 30 tax offices. In North Rhine-Westphalia there are nine inheritance tax tax offices and 104 tax office districts. Finding the right tax office is very important. “Anyone who reports their inheritance to the wrong tax office will not meet the deadline,” says Fischl.
3. Mistake: assigning inheritance incorrectly
It is not always clear to legal laypeople what portion of the estate they have inherited. This can be unclear, for example, if there are several heirs, a will provides for additional legatees or the testator has appointed so-called previous and subsequent heirs.
“In cases of doubt, you should seek tax advice and not enter any assumptions in the notification of an acquisition upon death or later in the inheritance tax return,” says Eichholz. If an heir provides false information, this could possibly be viewed as attempted tax evasion.
4. Mistake: Forgetting debts and costs
The form for the notification of an acquisition upon death contains a detailed list of all possible assets that one could have inherited - from agricultural and forestry assets to cash and claims to compulsory portions.
The estate liabilities such as the testator's debts or funeral expenses should also be stated. They reduce the value of the inheritance. “Instead of proving the costs individually, the flat rate amount for inheritance costs can be set at 15,000 euros,” says Eichholz.
5. Mistake: Not using material tax allowances
For spouses and life partners, the exemption amount for inheritance and gift tax is 500,000 euros, for children it is 400,000 euros and for grandchildren it is 200,000 euros. For everyone else, including acquaintances and friends, it is 20,000 euros. These allowances apply every ten years.
In addition, heirs can use so-called material tax allowances. The amount depends on the respective inheritance tax tax class. Close relatives, i.e. spouses, registered partners, children and grandchildren, have tax class I. They receive an allowance of 41,000 euros for household goods. “In most cases, this allowance should be sufficient and you don’t have to make a detailed list of the household contents,” says Eichholz.
The assessment could be different, for example, if a testator had recently purchased expensive designer furniture. For movable items such as watches, jewelry or cars, close relatives also have an allowance of 12,000 euros.
6. Mistake: Not disclosing donations
Since a common tax allowance applies to inheritances and gifts, donations from the past ten years must also be reported to the tax office in an inheritance tax return.
“You should definitely list the gifts truthfully,” says Fischl. “However, you can also state the reason for the gift and hope that the tax office will recognize it as a so-called usual occasional gift,” says the tax advisor. If this works, no tax will be due in accordance with Section 13 Paragraph 1 No. 14 ErbStG.
7. Mistake: First explore the real estate market, then move into the house
If a home you used yourself is part of the estate, there are special regulations for the inheriting spouse or child. Anyone who uses the property themselves for at least ten years after the death of their partner or parent does not have to pay inheritance tax on it. For children, the additional restriction applies that the living space of the inherited property may not exceed 200 square meters.
But the tax exemption can be lost. “This can happen if you initially decide against using it yourself, explore the market for a sale and later move in yourself,” says Fischl. “It looks different if you first move in yourself and explore the market from this position.” If there is no sale, the requirement for tax exemption is still met.
8. Mistake: Moving into an inherited house too late
If you want to use the inherited property yourself and benefit from the tax exemption, you usually have to move in within six months of the inheritance. “Simply re-registering at the residents’ registration office is not enough; the actual move in and the justification of one’s center of life are crucial,” says Fischl.
The deadline cannot always be extended simply because of ongoing renovation work. The Federal Finance Court (BFH) has decided: “If the purchaser carries out clearance and renovation work before moving into an acquired family home, he must support this in a way that corresponds to his personal possibilities.” The tax authorities would have to decide in each individual case what exactly is reasonable (ref.: II R 6/21).
To be on the safe side, it might make sense to first move into the property and then renovate one room at a time, says Fischl. In addition, delays by the craftsmen should be well documented.
In addition, the tax allowance can be lost if the heir moves out of the property before ten years have passed. An exception applies if the heir becomes in need of care and has to move into a nursing home. “Professional reasons are generally not recognized by the courts,” says Fischl.
9. Mistake: Only provide information when asked
Whether the tax office grants a tax advantage often depends on the circumstances of the individual case. “I once had a client who moved into an inherited apartment alone, and his wife continued to live in a house nearby,” says Fischl. “Such a constellation does not negate the tax exemption per se, but you should proactively explain it to the tax office before you receive any questions about it.”
After all, marriage does not require the partners to live in the same property all the time, and some couples also ensure spatial separation within a shared property.
10. Mistake: Estimating the value of the property yourself
How much a property is worth can hardly be estimated with a finger. “Heirs should follow the valuation procedures that the tax office uses,” says Eichholz. According to the tax expert, self-used residential properties are usually valued using the comparative value method. To do this, the property is compared with similar properties in the area. The basis is so-called purchase price collections from local appraisal committees.
