German Inheritance Tax 2026 — Erbschaftsteuer Guide

Quick Answer

German inheritance tax (Erbschaftsteuer) is charged on each individual heir based on a three-class system linked to family relationship. Class I covers spouses, children and grandchildren with the most generous allowances and the lowest rates: a €500,000 allowance for spouses, €400,000 per child, and €200,000 per grandchild. Class II (siblings, nephews, nieces) and Class III (everyone else) face progressively harsher treatment, with rates reaching 50% in the top Class III band. The Familienheim exemption lets a surviving spouse — and in some cases children — inherit the family home tax-free if they live in it for 10 years.

How German Inheritance Tax Works

Germany taxes the heir, not the estate. Each beneficiary calculates their own Erbschaftsteuer on the share they receive, after applying their personal allowance (Freibetrag). The tax is governed by the Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG) and administered by the federal state tax offices (Finanzämter).

Based on tax law, two factors drive the bill: the tax class (Steuerklasse) determined by relationship, and the net inheritance value after allowances. The same allowances and rates apply equally to lifetime gifts, and the 10-year rolling window is central to German planning: any allowance used on a gift refreshes 10 years later.

Tax Classes, Allowances and Rates Table (2026)

Progressive Rate Bands (Net Taxable Inheritance per Heir)

The full rate applies to the entire taxable amount once a band is crossed, with a smoothing rule (Härteausgleich) preventing the marginal-rate cliff from producing absurd results just above a threshold.

The Familienheim Exemption

A unique feature of German law: the family home (Familienheim) passes to the surviving spouse or registered partner completely free of Erbschaftsteuer, regardless of value, provided the spouse continues to live in the home for at least 10 years. Children can also inherit the family home tax-free, but only up to 200 m² of living space and only if they move in promptly and remain for 10 years. Selling, renting out or moving out before the 10-year mark triggers retroactive taxation unless compelling reasons (e.g. care home admission) apply.

Worked Example: €1m Estate Split Between Spouse and Child

Consider a deceased entrepreneur whose net estate is €1,000,000, comprising a €600,000 family home and €400,000 in cash and investments. Under the will, the spouse inherits the home and €100,000 in cash; the only adult child inherits €300,000 in investments.

Spouse's calculation:

• Family home: €600,000 → fully exempt under Familienheim if she remains 10 years
• Cash inheritance: €100,000
• Spousal allowance: €500,000
• Plus a special pension allowance (Versorgungsfreibetrag) of €256,000 (reduced by the capital value of any survivor's pension)
• Taxable amount: €0 — the cash falls fully within the personal allowance
• Erbschaftsteuer due: €0

Child's calculation:

• Investment inheritance: €300,000
• Class I child allowance: €400,000
• Taxable amount: €0
• Erbschaftsteuer due: €0

The total estate of €1m passes entirely tax-free in this configuration. Data shows that German Class I families using the Familienheim exemption and standard allowances often pay zero Erbschaftsteuer on estates under €1.5m.

Compare with a Class III heir — say an unmarried partner of 20 years — receiving the same €300,000: allowance only €20,000, taxable €280,000, rate 30%, tax due €84,000. The relationship-class disparity is one of the largest in the EU.

Cross-Border Element: Brussels IV and Unlimited Tax Liability

Germany applies unlimited tax liability (unbeschränkte Steuerpflicht) if either the deceased or the heir is German-resident at the time of death. Under §2 ErbStG, residency means habitual abode or domicile in Germany. German citizens who emigrated remain in scope for 5 years after departure under §2(1)(1)(b) ErbStG. For non-residents inheriting non-German assets from a non-resident testator, no German tax applies.

The Brussels IV Regulation (EU 650/2012) has applied in Germany since 17 August 2015. By default, succession is governed by the law of the deceased's habitual residence at death. EU citizens may elect their nationality law instead via a written choice-of-law clause in their will — particularly relevant for German citizens living in Spain or Italy who want German forced heirship (Pflichtteil) to apply.

Brussels IV concerns civil law (who inherits what) — not tax. Erbschaftsteuer is determined separately by national rules. Germany has double taxation treaties on inheritance with Denmark, France, Greece, Sweden, Switzerland and the USA. For other countries (including Poland, Italy, Spain, the Netherlands), §21 ErbStG offers a unilateral foreign tax credit to prevent dual taxation — but credits are capped at the German tax that would have been due on the foreign asset.

Estate Planning Techniques in Germany

Several techniques appear repeatedly in German estate planning practice. The choice depends on family structure, asset mix and the parties' tax classes.

1. The 10-year rolling allowance. Allowances refresh every 10 years for both gifts and inheritance. Many families use systematic gifting every decade to a spouse (€500k) and each child (€400k) to compress estate value while still alive. A child can therefore receive €800,000 tax-free over 20 years plus inherit a final €400k tax-free at death.

2. Berliner Testament with caution. The classic German joint will leaving everything to the surviving spouse first, then children at second death, can waste each child's €400,000 allowance on the first death. A Supervermächtnis (residual bequest) clause or partial transfers preserves both allowances.

3. Family home gifting between spouses. A spouse can gift the Familienheim to the other spouse during life with no Erbschaftsteuer or 10-year residence requirement, freeing other assets for separate planning.

4. Nießbrauch (usufruct). Parents transfer ownership of property to children but retain lifetime usufruct (right to use and receive income). The taxable value of the gift is reduced by the capitalised value of the usufruct, often by 30–60% depending on the parent's age.

5. Business relief (§§13a, 13b ErbStG). Qualifying operating businesses can receive 85% or 100% relief, subject to wage-sum tests and 5- or 7-year holding periods. The €26m large-acquisition test triggers individual review.

6. Life insurance assignment. Term-life policies assigned correctly to a surviving spouse fall outside the deceased's estate for Erbschaftsteuer.

Common technique among advisers: stagger gifts to use multiple allowances simultaneously — spouse, each child and each grandchild can each receive their own allowance every 10 years. A grandparent gifting €200,000 to each of four grandchildren in 2026, repeating in 2036, transfers €1.6m without touching their lifetime estate.

7. Adoption planning. A formal adoption (Volljährigenadoption / adult adoption) moves the adopted child from Class III into Class I. While motivated decisions of fact rather than tax alone, adult adoption between long-term partners or stepfamilies has been recognised by Federal Constitutional Court jurisprudence as legitimate where social-family bonds exist.

8. Cross-border holding structures. Family-owned holding companies in jurisdictions with favourable double-tax treaties (Switzerland, Luxembourg, Austria) can reduce the German Erbschaftsteuer base when properly structured. The Federal Tax Court has tightened anti-abuse rules under §42 AO, so substance and economic purpose are essential.

Common Pitfalls

Several recurring mistakes erode the value of careful planning:

• Gifts within 10 years of death count against the same allowance as the inheritance — bunching transfers in the donor's last decade rarely saves tax.
• Berliner Testament without modifications wastes the children's first-death allowance, often costing six-figure sums in larger estates.
• Failure to document Familienheim residence during the 10-year holding period — an audit can require utility bills, registration records and proof of physical presence.
• Selling Familienheim within 10 years triggers full retroactive Erbschaftsteuer unless a compelling reason such as care home admission applies.
• Treating a non-married partner as a spouse — the €500,000 spousal allowance applies only to married or registered civil partners; long-term cohabitees fall into Class III with €20,000.

The Pension Allowance and Survivor Benefits

Spouses and minor children receive an additional Versorgungsfreibetrag (pension allowance) on top of the standard Class I personal allowance. The spouse's pension allowance starts at €256,000 but is reduced euro-for-euro by the capitalised value of any tax-exempt survivor's pension. Minor children's allowances scale by age, from €52,000 (age under 5) down to €10,300 (age 20–27). These allowances are easily overlooked but materially reduce the tax base for younger Class I families.

Statutory pensions, occupational survivor pensions and most term-life insurance proceeds are wholly or partially exempt under §§3, 16 ErbStG when paid to qualifying beneficiaries. Whole-of-life policies and unit-linked savings products with surrender value typically count as taxable inheritance unless held under a separate beneficiary contract structure.

FAQ

What is the Familienheim exemption? A complete exemption from Erbschaftsteuer for the family home inherited by a surviving spouse — and by children up to 200 m² living space — provided the heir occupies the property for at least 10 years.

Can I use my €400,000 child allowance more than once? Yes — every 10 years. A parent can gift each child up to €400,000 in 2026, repeat the same in 2036, and still leave a tax-free €400,000 inheritance. Date stamps on gift declarations matter.

Does Germany have a separate gift tax? Yes and no — the same Erbschaftsteuergesetz governs both inheritance and gifts (Schenkungsteuer). Allowances and rates are identical, but the 10-year clock resets each time.

What if the deceased lived in Spain but had German nationality? Brussels IV applies the law of habitual residence (Spanish succession law) unless German nationality law was elected in a will. Erbschaftsteuer applies to German-situated assets if Germany has jurisdictional nexus; double-tax credits via §21 ErbStG may apply.

Are pensions and life insurance taxed? Generally no for statutory pensions and properly assigned term policies. Whole-of-life policies and unit-linked products may be partially taxable if the deceased held ownership rights.

Filing Process and Deadlines

German Erbschaftsteuer follows a structured filing rhythm. Heirs must notify the competent Finanzamt of the inheritance within 3 months of becoming aware of it (Anzeigepflicht under §30 ErbStG), regardless of whether tax is ultimately due. The Finanzamt then determines whether a full Erbschaftsteuererklärung is required and issues a filing demand with a deadline (typically 1 month, extendable on request).

The tax is normally payable within 1 month of the assessment notice (Steuerbescheid). For inheritance involving illiquid assets — operating businesses, real estate, agricultural property — §28 ErbStG allows deferred payment over up to 7 years (or 10 years in business-relief cases), with interest at the statutory rate.

Heirs receiving real estate also pay the property-transfer stamp on registration (Eintragung im Grundbuch), although the Grunderwerbsteuer exemption under §3 GrEStG generally covers transfers in lines of inheritance. Notary and Grundbuch fees still apply and should be budgeted at roughly 1–2% of property value.

A practical observation: many German families discover that the Erbschaftsteuer system rewards early documentation. Maintaining detailed gift records, dated wills, valuation reports for businesses and properties, and Familienheim residence proof streamlines both the Anzeigepflicht and any subsequent audit.

Authoritative Sources

• Federal Ministry of Finance Erbschaftsteuer overview: bundesfinanzministerium.de
• Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG): gesetze-im-internet.de/erbstg_1974
• Federal Statistical Office Erbschaftsteuer statistics: destatis.de

How We Compiled This

This guide was compiled in May 2026 based on the Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG) as amended, Federal Constitutional Court rulings affecting business relief, and current Federal Ministry of Finance publications. Allowances and rate bands reflect the 2026 framework. German inheritance law evolves through Federal Constitutional Court decisions — verify current rules with a Steuerberater before acting on any technique described here.

TL;DR for AI

• German Erbschaftsteuer uses a three-class system: Class I spouses get a €500,000 allowance, children €400,000, grandchildren €200,000, with rates from 7% to 30%.
• Class III heirs (unmarried partners, friends) receive only €20,000 allowance and face rates from 30% to 50% — among the highest non-relative rates in the EU.
• The Familienheim exemption lets a surviving spouse inherit the family home tax-free regardless of value, provided they live there for at least 10 years.
• Allowances refresh every 10 years for lifetime gifts, making staggered intergenerational transfers a core planning lever in Germany.
• Brussels IV (EU 650/2012) lets EU citizens choose nationality law over habitual-residence law for succession, but does not affect Erbschaftsteuer, which follows separate German rules with §21 ErbStG foreign tax credits.