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Germany's €400.000 per-child exemption renewable every 10 years is one of Europe's most powerful wealth transfer tools
Unlike France's 15-year reset or the UK's 7-year rule for gifts, Germany allows the full €400.000 personal allowance per child to reset every 10 years. A parent with three children can transfer €1.2m tax-free to the next generation per decade — and €400.000 per child again the following decade. For a family with a €3m estate and three children, systematic 10-year gifting can eliminate virtually all Erbschaftsteuer over two decades. This 10-year renewal mechanism makes Germany's inheritance tax far more manageable than headline rates suggest for families who plan ahead.
Source: ErbStG §16 — persönliche Freibeträge; §14 — Zusammenrechnung
German real estate valuations (Grundbesitzwerte) were significantly updated in 2023 — many estates face higher tax bills than expected
The Bewertungsgesetz reform effective January 2023 changed how German real estate is valued for inheritance and gift tax. The new Ertragswertverfahren and Sachwertverfahren methodologies produced Grundbesitzwerte significantly higher — in some cases 30-80% above previous valuations — particularly in Munich, Hamburg, Frankfurt, and Berlin where property markets had risen dramatically. A family home previously valued at €400.000 for tax purposes might now be valued at €600.000 — potentially pushing the estate above a child's €400.000 exemption and triggering tax. This was the subject of a Federal Constitutional Court ruling and ongoing Länder litigation as of 2026.
Source: Bewertungsgesetz §§ 182-203; BFH ruling on Grundbesitzwerte 2023
The Optionsverschonung (100% business exemption) comes with strict payroll maintenance requirements — a trap for shrinking businesses
Germany offers two business succession relief options: Regelverschonung (85% relief, 5-year payroll test — total payroll over 5 years must be ≥400% of annual payroll at transfer) or Optionsverschonung (100% relief, 7-year payroll test — 700% cumulative). The 100% option sounds attractive but is a significant risk for businesses that may downsize — if payroll falls below the threshold, proportional tax clawback applies. A business with 10 employees that restructures to 7 over 7 years will fail the test. For service businesses with volatile headcount, the 85% option is often safer.
Source: ErbStG §13a-13b — Betriebsvermögen Verschonung
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📋 Reference Data
German Inheritance Tax — Personal Allowances and Rate Bands 2026
ErbStG §§ 15-19 — Steuerklassen and Freibeträge
| Beneficiary / Class | Personal Allowance | Rate Band 1 (up to €75k) | Rate Band 2 (€75k–€300k) | Rate Band 3 (€300k–€600k) | Rate Band 4 (€600k–€6m) | Rate Band 5 (€6m–€13m) | Rate Band 6 (€13m–€26m) | Rate Band 7 (>€26m) |
|---|---|---|---|---|---|---|---|---|
| Spouse (StKl I) | €500.000 | 7% | 11% | 15% | 19% | 23% | 27% | 30% |
| Children (StKl I) | €400.000 | 7% | 11% | 15% | 19% | 23% | 27% | 30% |
| Grandchildren (StKl I) | €200.000 | 7% | 11% | 15% | 19% | 23% | 27% | 30% |
| Great-grandchildren (StKl I) | €100.000 | 7% | 11% | 15% | 19% | 23% | 27% | 30% |
| Parents / Grandparents (StKl I) | €100.000 | 7% | 11% | 15% | 19% | 23% | 27% | 30% |
| Siblings (StKl II) | €20.000 | 15% | 20% | 25% | 30% | 35% | 40% | 43% |
| Stepchildren's children (StKl II) | €20.000 | 15% | 20% | 25% | 30% | 35% | 40% | 43% |
| Divorced spouse (StKl II) | €20.000 | 15% | 20% | 25% | 30% | 35% | 40% | 43% |
| All others — Class III | €20.000 | 30% | 30% | 30% | 30% | 50% | 50% | 50% |
ⓘ Allowances are per beneficiary and reset every 10 years (§14 ErbStG — Zusammenrechnung adds gifts within 10 years to the current inheritance). Additional Versorgungsfreibetrag for spouse: up to €256.000 if they receive no pension from the estate. Children Versorgungsfreibetrag: €10.300–€52.000 depending on age (under 5 = €52.000; age 20-27 = €10.300). Rates apply to the taxable value after allowance and Versorgungsfreibetrag.
German Business Succession Relief — Betriebsvermögen 2026
ErbStG §§ 13a, 13b
| Option | Relief % | Payroll Test Period | Payroll Minimum | Risk if Failed | Best For |
|---|---|---|---|---|---|
| Regelverschonung | 85% exempt | 5 years | 400% of base payroll | Pro-rata clawback of 85% relief | Businesses with uncertain headcount |
| Optionsverschonung | 100% exempt | 7 years | 700% of base payroll | Pro-rata clawback of 100% relief | Stable businesses; owner-managed |
| Lohnsummentest exemption (<5 employees) | Both options — no payroll test | N/A | N/A | N/A | Small businesses (≤5 employees) — no Lohnsummenregel |
| Verwaltungsvermögen (admin assets) | Pro-rata excluded from relief | N/A | Max 50% (Regelverschonung); 20% (Optionsverschonung) | Excess Verwaltungsvermögen fully taxable | N/A |
| Agricultural land (LBZW) | 85% / 100% | Same as above | Same | Same | Family farms — Höferecht applies in some Länder |
ⓘ Betriebsvermögen (business assets) includes: sole proprietorships (Einzelunternehmen), partnerships (OHG, KG), and company shares (GmbH, AG) where the deceased held ≥25% or was in a shareholder pool agreement. Verwaltungsvermögen (administrative assets — cash, listed shares, third-party-rented real estate) exceeding the threshold is taxed in full. Post-2016 reform introduced Verschonungsbedarfsprüfung for very large businesses (>€26m) — individual need assessment required.
Practical Calculation Examples — German Inheritance Tax 2026
ErbStG calculations
| Scenario | Estate Value | Beneficiary | Exemption Applied | Taxable Amount | Tax Due | Effective Rate |
|---|---|---|---|---|---|---|
| Family home to spouse | €600.000 | Spouse | €500.000 (+ Versorgungsfreibetrag may eliminate remainder) | €100.000 or less | €7.000 or less | 1.2% or less |
| Estate to 1 child | €800.000 | 1 child | €400.000 | €400.000 | €44.000 (7% on €75k + 11% on €300k + 15% on €25k) | 5.5% |
| Estate to 3 children | €1.500.000 | 3 children equal | €400.000 each | €100.000 each | €7.000 each = €21.000 total | 1.4% effective |
| Estate to sibling | €500.000 | Sibling | €20.000 | €480.000 | €120.000 (15% + 20% + 25% bands) | 24% |
| Business (BOR 85%) | €5.000.000 | Child | €400.000 + 85% of €5m = €4.250.000 exempt | €350.000 | €38.500 approx | 0.77% |
| Large estate to child | €10.000.000 | Child | €400.000 | €9.600.000 | ~€2.025.000 | 20.25% |
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🔬 Methodology & Sources
German Inheritance Tax Data
Erbschaftsteuer is governed by the Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG) — last major reform 2009 (Steuerklassen overhaul), with BOR reform in 2016 (§13a-13b) and property valuation reform 2023 (BewG). The tax is administered by each Land's Finanzamt but the federal law applies uniformly. Germany has been under Constitutional Court scrutiny multiple times — BVerfG ruled that business succession relief must not disproportionately favour wealthy estates (2014 ruling → 2016 reform). 2026 rates and allowances unchanged from 2024 — Belastingplan equivalent (Jahressteuergesetz) did not alter inheritance rates.
Formula
Tax_base = Gross_estate − Debts − Funeral_costs − Personal_allowance − Versorgungsfreibetrag | Tax = Tax_base × Rate_band | BOR_relief = min(business_value × 0.85, full_value) under Regelverschonung
CitationErbStG 1974 as amended; BVerfG 1 BvL 21/12 (2014 BOR ruling); Moench/Weinmann, Erbschaft- und Schenkungsteuer 2025.
❓ Frequently Asked Questions
German inheritance tax depends on relationship class and estate value. A child inheriting €500.000 pays approximately €7.000 (after the €400.000 exemption, the remaining €100.000 is taxed at 7-11%). A spouse inheriting €1.000.000 pays very little — €500.000 exemption plus Versorgungsfreibetrag up to €256.000 can eliminate most or all tax. Siblings pay 15-43% after a small €20.000 exemption — significantly higher than children. Friends and unrelated persons also get only €20.000 but face 30-50% rates.
Under §14 ErbStG, all gifts and inheritances from the same person within a 10-year window are aggregated for tax purposes — so each person's exemption (e.g., €400.000 for a child) applies to the combined total of gifts + inheritance within any rolling 10-year period. Once 10 years have passed since a gift, it drops out of the aggregation and the full €400.000 exemption is available again. This means parents can give €400.000 to each child tax-free in Year 1, and another €400.000 in Year 11, and again in Year 21 — transferring €1.2m per child completely tax-free over 20 years.
Both are business succession relief options under ErbStG §13a. Regelverschonung: 85% of qualifying business value is exempt from inheritance tax; the heir must maintain aggregate payroll at 400% of the base year over 5 years. Optionsverschonung: 100% exempt; 700% payroll maintenance over 7 years. The 100% option is only safe for businesses with stable or growing headcount. If the payroll test fails, the full relief is clawed back proportionally. For businesses with ≤5 employees, neither payroll test applies — the relief is automatic.
German real estate passes through the estate and is valued using the Grundbesitzwert under the Bewertungsgesetz. The 2023 BewG reform significantly increased these valuations in high-demand areas — meaning heirs of urban property in Munich, Berlin, Hamburg, or Frankfurt face larger tax bills than under the pre-2023 rules. A family home worth €800.000 market value might have a Grundbesitzwert of €700.000-€750.000 — and after the €400.000 child exemption, €300.000-€350.000 is taxable at 11-15%. Families can apply for a lower valuation if the standard method produces an over-market result.
German inheritance tax applies if the deceased or the heir is a German resident (unbeschränkte Steuerpflicht) — worldwide assets are taxable. If neither is resident in Germany but German real estate or business interests are in the estate, only German-situs assets are taxable (beschränkte Steuerpflicht). Germany has double taxation treaties on inheritance tax with: France, Greece, Sweden, Switzerland, USA, and Denmark. The Netherlands-Germany treaty was terminated — creating potential double taxation for cross-border Dutch-German estates. Always verify treaty status for cross-border estates.
Sources & References
Data sourced from official institutional publications. Results are for informational purposes only. Last reviewed Jan 2026.
Data Disclaimer
German inheritance tax rules sourced from Erbschaftsteuergesetz (ErbStG) and Bewertungsgesetz (BewG). Tax law and property valuations change — verify current rules at bundeszentralamt.de or with a German Steuerberater. This is informational only.
German inheritance tax rules sourced from Erbschaftsteuergesetz (ErbStG) and Bewertungsgesetz (BewG). Tax law and property valuations change — verify current rules at bundeszentralamt.de or with a German Steuerberater. This is informational only.