In the event of inheritance, a family home may be transferred tax-free from a parent to a child if the parent lived there personally prior to death, the child moves in immediately after the death, and the living area does not exceed 200 square meters. The Federal Fiscal Court (BFH) has now ruled that jointly used garden and access road land is also tax-exempt. For inheritance tax purposes, the economic unit consisting of land parcels—as determined in a binding manner for the inheritance tax proceedings—is to be regarded as tax-privileged property.
Practical example:
The plaintiff inherited from his deceased father. The estate included a residential house that the father had occupied himself prior to his death and into which the son moved after his father’s death. The tax office had limited the inheritance tax exemption to the parcel of land on which the residential house was built. It did not take into account the garden and path areas used in conjunction with the family home. The plaintiff challenged this decision.
In the appeal proceedings, the Federal Fiscal Court (BFH) ruled in favor of the plaintiff. The term „developed property“ within the meaning of Section 13(1)(4c) of the Inheritance Tax Act (ErbStG) must be interpreted in accordance with valuation law. It encompasses all areas that the local tax office, at the location of the real property, determines to constitute an economic unit in a manner that is binding on the inheritance tax office. This means that multiple parcels of land that are used jointly—such as a residential house with an adjacent garden or an access path—may qualify for the tax exemption if they are determined to constitute a single economic unit. This interpretation reflects the actual residential use, which the local tax office is well positioned to assess.
Important! Heirs must challenge the local tax office’s determination of the economic unit as soon as it is made if they disagree with the designation of the tax-exempt property. This is because, once inheritance tax proceedings have begun, objections to the scope of the property will no longer be successful.