Was gilt im Auslandserbfall bei Vermächtnissen?
What happens if a person bequeaths a property in Germany to someone – and neither the deceased nor the beneficiary is tax resident in Germany? Does this automatically trigger limited inheritance tax liability in Germany? A recent ruling by the German Federal Fiscal Court (BFH) provides clarity and highlights how cross-border legacies can offer interesting structuring opportunities. However, caution is advised in inheritance cases involving EU countries. Below we summarize the key points and explain when tax benefits may be available and where room for structuring exists.
1. Background: Limited Inheritance Tax Liability in Germany
Limited inheritance tax liability arises where neither the deceased nor the acquirer (e.g. heir or beneficiary) is resident in Germany and – if they hold German citizenship – they have been living abroad for more than five years. In such cases, only so-called “domestic assets” under § 121 of the German Valuation Act (BewG) are subject to tax. These include, among others:
- Real estate located in Germany
- German agricultural and forestry property
- Shareholdings in corporations with domicile or management in Germany (if the stake is at least 10%)
2. The Case in Question: Bequest of German Property
The decedent, who had been living in Switzerland, bequeathed a property in Germany to her niece residing in the United States. Under § 1939 of the German Civil Code (BGB), a legacy (Vermächtnis) is when a testator grants a financial benefit to someone without appointing them as an heir.
A legacy creates a legal claim to the transfer of the specified asset. In this case, the niece was registered as the new owner in the German land register in fulfilment of the bequest.
The local tax office assessed inheritance tax on this transfer. However, the BFH ruled otherwise in its judgement of 23 November 2022 (Case No. II R 37/19).
3. BFH Ruling: No Domestic Asset in a Legacy Claim
According to the BFH, the list of domestic assets in § 121 BewG is exhaustive. This means that situations not explicitly covered cannot be brought within the scope of limited inheritance or gift tax liability.
A mere legal claim to the transfer of real estate under a legacy does not constitute a taxable domestic asset.
The BFH further held that there is no legal basis for an extended interpretation of the term “real estate” to include such a claim. Unlike an immediate inheritance of property, in the case of a legacy it is not guaranteed at the point of transfer that the legatee will ultimately become the legal owner. In fact, the transfer might never take place. As a result, the court concluded that a strict interpretation of the statutory wording is required.
4. Practical Implications: Structuring Opportunity with Caveats
In practical terms, this means:
- Where both the testator and legatee are non-resident in Germany, a legacy may allow for a tax-free transfer of German property.
- This structuring option is not available in statutory inheritance cases.
- Caution is needed in EU succession cases: under the EU Succession Regulation, some jurisdictions may treat a legacy as a direct transfer of ownership. This would re-trigger limited inheritance tax liability in Germany.
5. Conclusion
This BFH ruling offers valuable clarity for international estate planning. For individuals not resident in Germany, using a legacy can represent a lawful and tax-neutral way to transfer real estate. However, each structuring must be carefully evaluated on a case-by-case basis to avoid tax pitfalls.
