In the case of inheritance tax, the taxable amount is not split up and subject to differential tax rates. That was the verdict of the BFH, Germany’s Federal Fiscal Court, in ruling from February 20, 2019 (Az.: II B 83/18).
When it comes to inheritance and gift tax, certain tax allowances apply depending on the degree of kinship. The key factor in calculating the tax owed is the value of the assets transferred. We at GRP Rainer Rechtsanwälte note that the relevant tax rate is applied to the total amount. The BFH concluded that the taxable acquisition cannot be further split up and subject to differential tax rates.
The plaintiff had been gifted a co-ownership share in two properties. The tax office applied a tax rate of 11 percent from a defined scale. The plaintiff wanted the tax to be calculated such that a tax rate of 7 percent would apply to the partial amount of 75,000 euros, and the tax rate of 11 percent would then only apply to the remaining sum exceeding this partial amount: 171,800 euros.
The BFH rejected this, ruling that splitting the taxable acquisition into partial amounts and subjecting it to differential tax rates is precluded by the hardship allowance under sec. 19 para. 3 of the German Act on Inheritance and Gift Tax (ErbStG).
Experienced tax lawyers can advise on matters pertaining to inheritance and gift tax.