Beneficiaries of a bequest may also claim the lump-sum deduction for inheritance-related expenses (Section 10(5)(3), second sentence, of the German Inheritance Tax Act (ErbStG)). This lump-sum allowance for a legatee need not be reduced if the inheritance received by the other heirs is not subject to German taxation.
Practical example:
The decedent lived in the United Kingdom and was succeeded by her brother, who also lived in the United Kingdom. The plaintiff, who lives in Germany, received a monetary bequest. In her inheritance tax return, she claimed the full flat-rate deduction for inheritance-related expenses, which at the time amounted to €10,300. In fact, she had incurred expenses of only €13.20 in connection with the inheritance. The tax office deducted only the actual costs from the plaintiff’s inheritance. It did not grant the lump-sum deduction for probate costs. The tax court took the lump-sum deduction into account on a pro rata basis, in proportion to the value of the bequest relative to the value of the entire estate. It held that granting the full lump-sum amount of 10,300 € was out of the question, as this would unduly benefit the plaintiff.
The Federal Fiscal Court (BFH) ruled otherwise. It held that the sole recipient who is personally liable for tax under Section 2 of the Inheritance Tax Act (ErbStG) may deduct the full lump-sum allowance. The lump-sum deduction for inheritance expenses may be claimed not only by heirs but also by other beneficiaries, such as legatees and those entitled to a compulsory share. However, it is granted only once per inheritance—regardless of the number of beneficiaries. If, in a case of inheritance, there are other persons in addition to a single beneficiary subject to unlimited tax liability whose inheritance is not subject to German taxation, the lump-sum allowance is not to be reduced. Rather, the beneficiary subject to unlimited tax liability is entitled to the entire lump-sum allowance. A reduction would result in the forfeiture of the reduced amount. However, the law does not provide for this.