Why do many people call the inheritance tax “fool’s tax”? Because without planning and advice, you often pay five to ten times more than necessary. With a good strategy, you can use exemptions, valuation discounts, exemption rules, and structuring – and reduce the effective tax from potentially 30% to under 5%. Here, I give you a clear overview of how inheritance tax in Germany works, why large inheritances are often taxed less than small ones – and what legal ways exist to drastically reduce the burden.
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.
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.
Relationship
Class
Tax exemption
Tax rate
Spouse / registered life partner
I
500,000 €
7–30 %
Child, stepchild, grandchild (deceased parents)
I
400,000 €
7–30 %
Grandchild
I
200,000 €
7–30 %
Parents, grandparents (inheritance)
I
100,000 €
7–30 %
Siblings, nieces, nephews, in-laws
II
20,000 €
15–43 %
Partner without marriage certificate, friends, third parties
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
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
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 %
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
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.
https://lukinski.com/wp-content/uploads/2024/09/erbschaft-erbe-gewinn-geldanlage-spezial-diskret-anonym-tipps-sprechen-erfahrungen-gesschwisterpaar-berlin.jpg8001200L_kinskihttps://lukinski.com/wp-content/uploads/2024/04/lukinski-logo-real-estate-investment-germany-house-villa-off-market.svgL_kinski2025-09-06 12:58:242026-08-01 19:02:36Why is inheritance tax also called the “fool’s tax”?
