Acquisition through foreign legacy exempt from inheritance tax

No inheritance tax is payable on a foreign bequest of German real estate to a foreign beneficiary.

Real estate in Germany can be bequeathed tax-free if the testator bequeaths the property to the beneficiary. However, neither the testator nor the beneficiary must be German and both must live abroad. This is because, unlike German nationals and persons domiciled or permanently resident in Germany, foreign heirs or legatees are only liable to pay tax to a limited extent. They only pay inheritance tax on the acquisition of ownership of certain assets, including domestic real estate.

However, if the beneficiary is bequeathed a legacy, this remains tax-free as an exception. The reason for this is that in the case of a legacy, the beneficiary does not acquire the property itself, but only a claim to the transfer of ownership of this property. The transfer of ownership takes place separately. The Federal Fiscal Court has expressly confirmed that there is a legal loophole here that can be used for structuring purposes. However, the exception does not apply in all cases, as in certain EU countries a legacy has direct effect, meaning that the legatee receives the property immediately and not just a claim to it.