The acquisition of a family home by a child is not tax privileged if left for use to a third party without consideration, even in the case of close relatives.
According to § 13 para. 1 no. 4c sent. 1 Inheritance and Gift Tax Act (IGTA), an acquisition by way of death of ownership or co-ownership of an improved property located within the European Union or the European Economic Area is tax-exempt, insofar as the deceased used a dwelling on it for own residential purposes until the event of succession, or was prevented from own use due to compelling reasons. Furthermore, the acquirer has to intend to use the dwelling immediately for own residential purposes (family home). Insofar as the living space exceeds 200 square meters, no exemption applies.
The wording of § 13 para. 1 no. 4c IGTA implies that the child actually moves into the dwelling. It has to be the child’s center of life, especially in case of more than one domicile (e.g. due to professional reasons). A mere intention to use the dwelling for own residential purposes is not sufficient.
If the dwelling is left for use to third parties, and even to close relatives, no tax privilege is granted. According to the Court, an extended interpretation of § 13c para. 1 no. 4c IGTA is likely to be unconstitutional.
For more details regarding the tax privilege of a family home see Koeniger, The German Inheritance and Gift Tax, 2017, p. 170 et seqq.