Inheritance tax on UK assets for UK citizen as German resident

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Hello, I am a UK citizen resident in Germany. My mother passed away recently and as the sole beneficiary of her estate, I stand to inherit around 300k GBP

 and a house worth 330k GBP. So approx 630k. For my situation, my tax free allowance in the UK is 1m GBP. Therefore I do not need to pay any inheritance tax.

 

It just occured to me however I may need to pay inheritance tax in Germany. I found the below link and it would be 15% on everything above 400k €.

https://de.wikipedia.org/wiki/Erbschaftsteuer_in_Deutschland

 

I also found some threads on here, but considering Brexit, I'm not sure how valid the information is.

 

So I am hoping to get some advice on what I need to do with regards to calculating and paying the correct taxes in Germany.

 

The house was purchased in 1974, so I assume it will not be subject to capital gains tax when I sell it.

 

Cheers

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I cannot comment from the German perspective but the UK rules charge IHT on the estate, not the beneficiaries.  If any IHT is due, it must be paid before the executors can obtain Probate and therefore before the residue of the estate can be distributed in accordance with the Will.  The £1m relates to cases where the full Nil Rate Band of £325,000 is available in relation to the first deceased, i.e. none of that NRB had been used on their death as the whole of estate was left to the spouse, meaning it can be transferred (on a claim) to the estate of the second-deceased.  Similarly, with the Residence NRB (up to £175,000), where, on the second death, the house was left to direct descendants.  So, the maximum Nil Rate  value is 2 x £325,000 and 2 x £175,000 = £1m.  I am sure that has all been dealt with correctly in the UK but just thought I would mention it in case it is relevant/helps. 

 

When you come to sell the property you will be liable for CGT in the UK.  Your acquisition cost for UK CGT is the value used for Probate/IHT, not the 1974 purchase price.  Any increase in value after the Probate valuation is subject to CGT using normal rules and the Annual Exempt Amount.

 

Hope that helps     

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Yep, it means that for most estates no IHT will be payable, not least because most ordinary people will not leave over £325k to persons other than their spouse or make gifts of that much within 7 years of dying.

 

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@jamiegw

 

Your information on German inheritance tax is correct.  You get a €400K "Freibetrag" but the amount that exceeds that will be subject to German inheritance tax rates applicable to persons in Klasse I.

 

At recent exchange rates (the one in effect on date of death will apply) the total value will be ca. €750K so your tax will be 15% (the Klasse I rate for taxable values greater than €300K and less than €600K) of €350K (the difference between €750K and €400K).

 

Since the real estate is located in the UK German domestic tax law (there is no death tax treaty between the UK and Germany) would allow you to claim a credit for the portion of any UK death (inheritance and/or estate) taxes allocable to the UK realty. Since you had no such tax liability there will be no credit.

 

It is also my understanding that upon sale of the UK realty you should not suffer any German income tax consequences if the property was owned by you or your mother for at least 10 years prior to sale. 

 

That rule will not necessarily apply to any other assets you may have inherited (stocks, bonds, collectibles, etc.) which will have a "carry-over" basis for German tax purposes, i.e. your mother's basis. Note, however, that for purposes of computing a holding period that might exclude a gain from German income taxation, your mother's date of acquisition will also "carry over" to you.

 

But you need to confirm all of this with a qualified Steuerberater.

 

 

 

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Thanks straightpoop. I've emailed my Steuerberater and hopefully they can assist me in this matter. It's a very straightforward estate and inheritance so hopefully an inheritance lawyer won't be required.

 

I also received a class 3 inheritance of £50k in 2019. It didn't occur to me that I'd potentially have to pay inheritance tax in Germany. So hopefully that'll also get sorted.

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Ok so my Steuerberater responded that they can help, so perhaps I'll give a future update when the process is complete for any future visitors.

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Ok I have an update, but on a different inheritance from 2018.

 

My Steuerberater handled everything for me. She correctly calculated the tax and gave me forms to send to the Finanzamt, along with some untranslated supporting documents (Will, summary of accounts). Finanzamt wrote back a few weeks later agreeing on the tax amount, and I paid it. There was no fine for late submission.

 

The fee is based on the inherited amount and can be viewed here under "Beratungstabelle": https://www.gesetze-im-internet.de/stbgebv/BJNR014420981.html

 

In my case the amount inherited was 60.000 and the Steuerberater fee was around 600€, due to the simplicity of the inheritance.

 

Regarding the inheritance from this year, the Steuerberater told me to write a letter to the Finanzamt within 3 months of the death informing them of the inheritance, even though I don't yet know the amount I will receive.

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