What does the 1.5 percent figure mean?

How to inherit, what to do? It’s not for nothing that inheritance tax is also known as the“stupid tax“. In other words, anyone who doesn’t deal with it is stupid. Why? You can see that very quickly here: €30 million becomes a tax burden of just €1.5 million.

The 1.5 percent is not a statutory tax rate, but an effective average that can result from very large company inheritances. It arises when exemption rules for business assets, deferrals and, in some cases, waivers come together. As a result, only a small part of the estate value is taxed at all.

Here is a concrete example calculation that shows how the effective tax rate falls from 30% to just 1.5% for a 100 million euro company inheritance. Extra short, so it’s easy to understand.

1st starting point – without benefits

Statutory rate: 30 %

Calculation:
€ 100 million × 30 % = € 30 million tax
→ Effective tax burden: 30 %

2. relief discount (85 % standard relief)

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

Calculation:
100 million × 15% = € 15 million taxable
15 million × 30 % = € 4.5 million tax
→ Effective tax burden: 4.5 %

3. option exemption (100% exemption possible)

Anyone who undertakes to continue the company for 7 years and not to reduce the payroll significantly can even apply for 100% tax exemption.

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

4. combination of structuring & deferral

In practice, there is often a mixture:

• Parts of the assets are outsourced to holding structures.
• Tax payments are deferred without interest for 7 years.
• The tax can be partially waived in the case of a “needs test“.

That means:

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

5. overview of the calculation

Here is an overview:

In short: you only pay €1.5 million in taxes this way

Legally, the state could demand €30 million. In reality, the company heir often only pays € 1.5 million due to tax exemption regulations, holdings and deferrals.

End.

In case you’re wondering… no family foundation involved?

The 1.5 % from the SPIEGEL article comes about without a family foundation – solely due to the statutory exemption of business assets. A family foundation can have a supplementary effect, but is not the reason for this figure.

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

• With a family foundation, assets can be transferred before inheritance.
• This allows inheritance tax obligations to be avoided or deferred.
• However, different rules apply here: Inheritance tax is payable, but with a time lag (e.g. every 30 years).

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

Learn more about the:

• Family foundation

How does inheritance tax work in Germany?

Inheritance tax (together with gift tax) regulates what goes to the tax authorities when assets are transferred. The decisive factors are tax brackets, allowances and types of assets that benefit. Important: Gifts count – and you can utilize many allowances every ten years. This allows you to plan over time and distribute assets cleverly.

• Legal basis: ErbStG + valuation law
• Tax classes I-III depending on relationship
• Allowances: e.g. € 500,000 (spouse), € 400,000 (children)
• Ten-year rule for gifts
• Benefits: Business assets, family home
• Progressive tax rates depending on class & level

Helpful links & sources:

• Federal Ministry of Finance – Inheritance and gift tax
• §Section 16 ErbStG Allowances
• Wikipedia: Inheritance tax in Germany

Tax brackets & allowances: The basic buffer

The tax class depends on the proximity to the testator. In class I (spouses, children, grandchildren), the tax-free amounts are significantly higher than in class II (e.g. siblings) and III (unrelated third parties). In addition, there are special pension allowances (e.g. for spouses). Result: A large proportion of normal inheritances already remain tax-free due to allowances. Only the surplus is taxable.

Family home & deferrals: Protection for your home

The owner-occupied family home can remain tax-free if acquired by a spouse or children under certain conditions (e.g. continued use, holding periods). In the case of real estate or companies, a deferral is also possible if the tax payment would otherwise jeopardize the assets. This provides time for financing or restructuring without having to sell immediately.

• §13 ErbStG Family home
• Family home information sheet (NRW)

Business assets: tax exemption of 85% or 100%

In the case of an inherited business, the standard exemption (85%) or the option exemption (100%) applies if the requirements are met (payroll, holding periods, administrative asset ratios). This is politically desirable: company successions should secure jobs and not fail due to the tax burden. For large estates, this is THE lever for tax reduction.

• IHK Munich: Business assets and tax exemptions

Erbe & Nachlass

Why do you save when you inherit a lot? … and how?

Large inheritances systematically take advantage of preferential treatment. Assets are structured in such a way that as much as possible falls into favored “drawers”: business assets, residential property (family home), usufruct concepts and deferred gifts. This lowers the assessment basis – and therefore the effective tax rate. Studies and government responses show: On average, major heirs often only pay low single-digit percentages.

• Effective load often only a few percent
• Reason: Exemption + allowances + design
• Gift instead of inheritance (time plays for you)
• Usufruct: transfer values, retain use
• Foundation solutions & family divisions
• Protect substance: Deferral/partial payments

Helpful links & sources:

• Süddeutsche Zeitung – Inequality through inheritance tax
• ZEIT – Large heirs pay less
• Wikipedia: Tax statistics on inheritances

Real estate GmbH: strategically shifting the tax burden

Many families rely on a so-called Immobilien-GmbH, especially for large real estate assets. Real estate is transferred to the business assets. The advantage: company shares often benefit from exemption rules of up to 85% or even 100%. In addition, shares can be transferred in stages over generations – often combined with gifts and usufruct rights.

Family foundation: Permanent tax optimization

A family foundation pools assets and ensures continuity over generations. As the foundation does not die, there is no traditional inheritance tax. Instead, lower current taxes apply. This model is often used for assets in the double-digit million range in order to secure long-term substance and avoid high one-off charges.

Designing with time: utilizing the ten-year cycle

If you start early, you can distribute assets via gifts at ten-year intervals. This allows you to increase your tax-free allowance several times. Example: A parent can transfer €400,000 tax-free per child every ten years – with two children, that’s €800,000 per round. Over 20 or 30 years, this results in a very high tax-free transfer without inheritance risk at the end.

Usufruct & residential rights: Give away value, keep control

With a reserved usufruct , you transfer a property, for example, but secure rental income or the right of use. This reduces the tax value of the gift because the capital value of the usufruct is deducted. You remain financially secure – and at the same time make more efficient use of tax-free allowances.

Why “stupidity tax”? Planning mistakes cost real money

If you don’t plan at all, you give away allowances, lose exemptions (e.g. due to failure to meet deadlines) or slip into higher rates due to an unfavorable structure. Advice helps to close gaps: from the structuring of matrimonial property regimes to wills, division arrangements and pre- and post-inheritance through to foundations. The difference between “doing nothing” and “smart planning”: often tens of thousands to millions.

50 million € inheritance Example calculation + tax optimization

Der Spiegel reports: “Rich company heirs often only pay 1.5% tax”. Is that possible? Yes. Clever planning reduces the tax burden. Without planning, you quickly pay almost €15 million in tax on a €50 million inheritance. With clever planning, the tax burden falls to 1-5%. Studies, laws and examples clearly show that those who optimize early on save millions. This is precisely why inheritance tax is often referred to as the “stupid tax”.

• 50 million € inheritance Example calculation

Avoid inheritance tax? My conclusion

You can rarely avoid tax completely – but you can manage it. The key: start early, stagger gifts, qualify beneficiary asset types, comply with holding and payroll rules and use the family home correctly. The greater the assets, the greater the leverage – and the more expensive mistakes become. Get tax and legal advice in good time, document everything properly and plan in variants (inheritance, gift, foundation). This will turn the “stupid tax” into an avoidable cost trap – and you will get more out of your inheritance.