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German Inheritance Tax

Dr. Stefan Königer

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Federal Finance Court (II R 33/15) – July 26, 2017

Expenses to make good the damage of inherited assets as e.g. real estate which are caused during the deceased’s lifetime but only appear after his death cannot be deducted as liabilities of estate within the meaning of § 10 para. 5 Inheritance and Gift Tax Act.According to the Federal Finance Court, expenses for the removal of damages in connection with inherited real estate do not come under liabilities of estate. In contrast, public (due to administrative order) or private liabilities (e.g. with respect to the tenant) to make good a damage are to be considered as liabilities of estate.

Nevertheless, a depreciation of value of real estate can be taken into consideration for valuation purposes. In this context, it does not matter if the depreciation of value was already unveiled during or after the deceased’s lifetime.

The fact that in the underlying case no liability of estate exists, does not result in a violation of the general principle of enrichment. The decisive date for the determination of the enrichment is the point in time when the tax becomes chargeable. Later events which increase or decrease the value of the acquired asset(s) do not have any effect on the tax base for Inheritance and Gift Tax purposes.

For more details in regard to liabilities of estate see Koeniger, The German Inheritance and Gift Tax, 2017, p. 84 et seqq.

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