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Full deductibility of estate liabilities
In principle, legacies, claims to compensation for compulsory portions and other general estate liabilities are deductible in full, even if the inheritance consists of tax-privileged business assets.
If an estate liability is economically related to tax-privileged business assets, it is only partially deductible in the amount of the non-previleged portion. In contrast to the tax authorities, however, the Federal Fiscal Court does not see such an economic connection merely because business assets were taken over together with the estate liability. This may possibly give rise to a legal connection, but in any case not to an economic connection. The restriction only applies if the inheritance liability is directly linked to specific assets - for example, a loan for their acquisition. If, however, the heir is only generally obligated to fulfill a bequest or to compensate for claims to compulsory portions and equalization of gains, then these obligations are deductible in full as estate liabilities.