Anyone who accepts an inheritance is generally obliged under Section 30 ErbStG (Inheritance and Gift Tax Act) to notify the competent tax office within three months of becoming aware of the inheritance. The tax office will then request the heirs to file an inheritance tax return. If the estate includes real estate, it must be clarified at what value such property is to be assessed. This value is generally calculated by the tax office and is determined as follows:
Market value as the basis
According to the requirements of the Federal Constitutional Court, the basis for valuing a property is its market value. This value, referred to in Section 9(1) BewG (Valuation Act) as the "common value" (gemeiner Wert), is to be determined by the price that would be achievable in ordinary business transactions upon a disposal. The decisive factors are the characteristics of the asset and all circumstances influencing the price. However, this applies without regard to unusual or personal circumstances, pursuant to Section 9(2) BewG. The reference date for valuation is always the date of the decedent's death.
Different valuation methods
Since a separate consideration of a single property is generally not sufficient, Sections 176 et seq. BewG contain various methods by which the market value can be determined. The aim is always a favourable assessment of the market value by the tax office. Which method is applied in an individual case depends on the type and use of the property. A distinction is made between the comparative value method, the income value method and the asset value method.
1. The comparative value method
Under the comparative value method pursuant to Section 183 BewG, the value of the property is determined on the basis of comparative prices, i.e. actually achieved purchase prices of comparable properties in the surrounding area. This method is to be applied as a matter of priority and is particularly suitable for condominium units or two-family houses.
2. The income value method
Under the income value method, pursuant to Section 184 BewG, the value of the buildings (building income value) and the land value are to be determined on the basis of income. Accordingly, the decisive factor is the future income to be generated by the property. The land value is determined on the basis of a standard ground value (Bodenrichtwert) prescribed in Section 196 BauGB (Federal Building Code), which is to be multiplied by the area of the plot. The building income value results from the gross income of the property, i.e. the annual rent payable for the use of the developed property less the operating costs, for example for administration, operation and maintenance of the property. The income value method is primarily used for rented properties.
3. The asset value method
Under the asset value method, the value of the property is determined pursuant to Section 189 BewG on the basis of the value of the buildings (building asset value) and the land value. The latter is determined as under the income value method, whereas the building asset value is derived from the standard production costs of the building, i.e. the average production costs per unit of area. This method is applied as a subordinate valuation procedure, primarily for owner-occupied properties.
Proof by expert opinion
In addition, pursuant to Section 198 BewG, it is possible to prove a lower market value of the property by means of an independent expert appraisal. As the valuation methods mentioned above are standardised procedures, the result is not always exact in an individual case. If the market value is set too high for this reason, this would also lead to a higher tax liability. In such cases, an additional appraisal by an expert is recommended.
Actual purchase price
Finally, an actually achieved purchase price may also be decisive for the valuation of a property if it is below the value determined by the tax office. This furthermore requires that the property has been sold within one year after the inheritance accrued.
Encumbered or rented properties
If the property is encumbered, for instance with a usufruct or right of residence, this must be taken into account pursuant to Section 14 BewG. According to this provision, the capitalised value of lifelong uses and benefits is determined by multiplying a factor to be determined on the basis of the mortality table of the Federal Statistical Office by the annual value, which is based on a locally and market-customary rent. This usufruct value can then be deducted from the market value of the property.
If, by contrast, the property is rented, it is to be assessed at a flat rate of only 90% of its value pursuant to Section 13d(1) ErbStG.
Exceptions: tax allowances and family home
Finally, it should be noted that not every acquisition of real estate by way of inheritance gives rise to an inheritance tax liability in the first place. On the one hand, the inheritance tax provides for personal allowances amounting to EUR 500,000 for the spouse or registered civil partner, EUR 400,000 for each child and EUR 200,000 for each grandchild of the decedent.
Furthermore, no inheritance tax is sometimes payable on the so-called family home (Familienheim). The property used by the decedent for their own residential purposes, into which certain heirs — including, among others, the spouse, registered civil partner or the children of the decedent — move within six months after the death and continue to reside in for at least ten years, gives rise to a tax exemption under Section 13(1) No. 4a ErbStG. For children, however, this applies only up to a living area of a maximum of 200 square metres.
For all matters of inheritance law, attorney Ms Julia Gerstein-Thole will gladly assist you with advice and support.
