Why do many people call inheritance tax “stupid tax”? Because without planning and advice, you often pay much more than necessary. With a good strategy, you can make use of allowances, exemptions and structures – and greatly reduce the effective tax. Here I will give you a clear overview of how inheritance tax works in Germany, why large inheritances are often taxed at a lower rate and what legal ways there are to reduce the burden.
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)
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.
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.
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.
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”.
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.
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