What does the 1.5 percent figure mean?

How to inherit, what to do? Not without reason is the inheritance tax also called the “fool’s tax“. This means that whoever does not deal with it is foolish. Why? You will see here very quickly, so 30 million euros become only 1.5 million euros in tax liability.

The 1.5 percent is not a legal tax rate, but an effective average that can result from very large business inheritances. It arises when exemptions for business assets, deferrals, and sometimes waivers coincide. As a result, only a small part of the estate’s value is actually taxed.

Here is a concrete calculation example that shows how the effective tax rate of 30% on a 100-million-euro business inheritance can drop to just 1.5%. Extra short, to make it understandable.

1. Starting point – without benefits

Legal rate: 30 %

Calculation:
100 Mio. € × 30 % = 30 Mio. € Control
→ Effective tax burden: 30 %

2. Relief discount (85 % relief rule)

The Law on Inheritance and Gift Tax (ErbStG) allows for 85 % tax exemption for business assets, if the business is continued for at least 5 years.

Calculation:
100 Mio. € × 15 % = 15 Mio. € taxable
15 Mio. € × 30 % = 4.5 Mio. € Control
→ Effective tax burden: 4.5 %

3. Option relief (100 % exemption possible)

Anyone who commits to continuing the company for 7 years and does not significantly reduce the total wages can even apply for 100 % tax exemption.

Calculation:
100 Mio. € × 0 % = 0 € tax
→ Effective tax burden: 0 %

4. Combination of Design & Deferral

In practice, there is often a mix:

• Parts of the assets are transferred into holding structures.
• Tax payments are deferred interest-free over 7 years.
• During the ” Need Assessment “, the tax can be partially waived.

That means:

Real effect:
Instead of 4.5 million €, often only 1.5 million € flows to the tax office.
→ Effective tax burden: 1.5%

5. Overview of the calculation

Here is an overview:

In short: This is how you pay only 1.5 million € in taxes

Legally, the state could demand 30 million €. Effectively, the company heir often pays only 1.5 million € through exemption rules, holdings, and deferrals.

End.

If you’re wondering… no family foundation involved?

The 1.5% from the SPIEGEL article comes about without a family foundation – solely through the legal exemption of business assets. A family foundation can be supplementary, but it is not the reason for this figure.

A family foundation, on the other hand, is an independent planning tool. It can also be used for tax optimization, but in a different way:

• With a family foundation, assets can be transferred before the event of inheritance.
• This can help avoid or delay inheritance tax obligations.
• However, different rules apply here: substitute inheritance taxes apply, but they are staggered (e.g. every 30 years).

In combination with business assets, a family foundation can be used to save additional taxes, but this is a separate strategy.

Learn more about:

• Family foundation

How does the inheritance tax work in Germany?

The inheritance tax (together with the gift tax) regulates what happens to assets when they are transferred to the state. Three key factors are decisive: tax class (degree of kinship), exemption amount (tax-free base) and Rating (what actually counts as value?). Gifts are included – but many exemption amounts can be renewed every ten years. This is where the largest legal lever lies.

• Legal basis: Inheritance Tax Act (ErbStG) + Valuation Act (BewG)
• Tax classes I–III depending on the family relationship
• Exemption amounts: 500,000 € (spouse), 400,000 € (child), 200,000 € (grandchild), 20,000 € (class III)
• Support exemption: up to 256,000 € (spouse), 10,300–52,000 € (children depending on age)
• Ten-year rule for gifts – repeatable
• Benefits: business assets, family home, rented residential property (10 % discount)
• Progressive tax rates: 7 % to 50 %

Tax classes, exemption amounts & tax rates at a glance

The tax class determines the tax exemption AND the tax rate – a double lever. Anyone who inherits as a partner without a marriage certificate falls into class III: 20,000 € tax exemption, after that at least 30 % tax. In the case of an inherited condominium worth 600,000 €, this quickly amounts to around 174,000 € in tax – something a spouse would never have to pay.

Helpful Links & Sources:

• Federal Ministry of Finance – Inheritance and Gift Tax
• §16 InhStG – Exemptions
• §19 InhStG – Tax Rates

Family Home & Deferrals: Protection for Your Home

The self-occupied family home can remain tax-free when transferred to a spouse unlimited or to children up to 200 m² living area – under certain conditions. Important: The heir must move into the property immediately and occupy it themselves for at least ten years. Renting out, selling, or leaving the property vacant within the period results in retroactive loss of the tax exemption.

• Spouse: no size restrictions, 10 years of self-occupation
• Child: tax-free up to 200 m², taxable in proportion above that
• Deferral possible (§28 InhStG): up to 10 years in case of asset endangerment
• Attention: Moving to a nursing home within the period does not automatically lead to loss
• Rented residential properties: 10 % valuation discount (§13d InhStG)

§13 InhStG Family Home | §13d InhStG Rented Residential Land

Business assets: Exemption of 85 % or 100 %

When inheriting a business, the standard exemption (85 %) or the option exemption (100 %) applies – if the conditions are met. This is where the “Dumm tax” often becomes a zero tax. However, those who violate the conditions lose the exemption retroactively – with interest.

• Standard exemption: 85 % tax-free, 5-year holding period, total wages 400 % over 5 years
• Option exemption: 100 % tax-free, 7-year holding period, total wages 700 % over 7 years
• Administrative asset ratio: max. 90 % (otherwise no exemption required), with 100 % option max. 20 %
• Purchase above 26 million €: Discount for small businesses melts away or need assessment
• The wage sum rule only applies to companies with fewer than 5 employees

IHK Munich: Business assets and tax exemptions

Heritage & Estate

Why do you save when you inherit a lot? The mechanics behind it

Large inheritances systematically take advantage of favorable conditions. Wealth is structured in such a way that as much as possible ends up in favored “drawers”: business assets, residential real estate, usufruct concepts, stretched gifts, foundations. This reduces the taxable base – and thus the effective tax rate. Studies and responses from the federal government show: On average, large heirs often pay only low single-digit percentages, while middle-class heirs with unplanned inheritances pay the full tax rate.

• Effective tax burden for large heirs: frequently 1.5–5 %
• Effective tax burden for middle-class unplanned heirs: 15–30 %
• Reason: Exemption + tax-free allowances + valuation discounts + structuring
• Gift instead of inheritance: Time + Ten-Year Rhythm
• Usufruct: Transfer values, retain usage
• Foundation solutions for assets from about 5 million €
• Protect assets: Deferral, partial payments, refinancing

Real Estate GmbH: Strategically shift tax burden

For large real estate assets, many families opt for a real estate GmbH. Real estate is transferred into the operating assets – and shares tend to benefit from exemption rules. Important: Pure asset management is often considered “management assets” for tax purposes and is NOT favored. Active management is required (own employees, own work) in order for the GmbH to achieve full exemption.

• Shares can be transferred in portions (new exemptions every decade)
• Combination with usufruct is possible
• Caution: 90% management assets test
• Cleanly document the separation between operations and management

Family Foundation: Long-term Tax Optimization

A family foundation pools assets and ensures continuity across generations. The foundation does not “die,” so no classic inheritance tax is due every few decades. Instead, the succession tax every 30 years applies – predictable and calculable. This model is particularly relevant for assets in the high single-digit million range.

• No inheritance tax during generational change
• Succession tax every 30 years (fictional inheritance to 2 children, class I)
• Protection against compulsory share and family disputes
• High setup costs and ongoing management
• Alternative: Foundation & Co. KG for greater flexibility

Design with time: Utilizing the ten-year rhythm

Who starts early distributes wealth through gifts at ten-year intervals. This way, you can use the tax-free allowances multiple times. Example: Both parents can transfer 400,000 € tax-free to each child every ten years – with two children, that’s 1.6 million € per round. Over 30 years and three gift rounds, 4.8 million € in tax-free transfers can be created.

• Both parents give gifts separately – tax-free allowances double
• Grandparents to grandchildren: 200,000 € per grandparent per grandchild per decade
• Chain gifting: Gift to spouse → the spouse gives on (caution: risk of abuse of structuring, waiting period recommended)
• Properly document, gift tax declaration is mandatory

Right of Use & Right of Residence: Give away value, keep control

With a reserved Nießbrauch, for example, you transfer a property but secure yourself rental income or usage rights until your death. The capital value of the Nießbrauch is deducted from the gift value – this often reduces the taxable base by 40–60 %, depending on the age of the transferor.

• Usufruct value = annual value × multiplier (BMF table, age/life expectancy dependent)
• Example: 60-year-old donor, 24,000 € annual rent → approximately 360,000 € value reduction
• Donor remains economically secured
• Can be combined with division into shares

Berlin-Will & Community Property Swings: The Classics

With the Berlin Will, spouses appoint each other as sole heirs, children inherit only after both have passed away. Tax-wise, this is often an issue: the children’s tax exemption in the first inheritance case is often unused. Solution: include legacies, division arrangements or a Jastrow clause.
The Marital Property Swing uses the change from community property → separate property → back again: the community property adjustment is tax-free under §5 Inheritance Tax Act – even beyond the 500,000 € exemption. Six-figure amounts can thus be transferred tax-free between spouses.

• Berlin Will: check mandatory share penalty clauses
• Marital Property Swing: notary required, document carefully
• Adult Adoption: can upgrade Class III to Class I (rare, but legal)

Why “Dumb Tax”? Poor planning costs real money

Who doesn’t plan at all gives away tax exemptions, loses exemptions due to missed deadlines or slips into higher tax brackets due to an unfavorable structure. Advice closes gaps: asset status, will, division arrangements, prior and subsequent inheritances, foundations. The difference between “doing nothing” and “smart planning”: often tens of thousands to millions.

Example Calculation: 50 Million € Inheritance – With and Without Planning

Der Spiegel reports: “Wealthy business heirs often pay only 1.5% in taxes”. How is that possible? Here’s the comparison:

Scenario A: Without Planning (50 Million € to a child)

• Wealth: 50,000,000 € (mix of real estate, securities, cash)
• Child’s tax exemption: – 400,000 €
• Taxable acquisition: 49,600,000 €
• Tax rate in class I for this volume: 30%
• inheritance tax: approx. 14.88 Mio. € (effective ~29.8 %
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