Inheriting property: What you need to know

How can property be inherited?

Under German inheritance law, there are two ways in which property can be passed on: through an active testamentary arrangement, or via intestate succession.

Active arrangements include an individual will, a joint will (such as the Berlin will) and an inheritance contract. Under a Berlin will, the surviving spouse first becomes sole heir; only after their death do the children inherit. All three options give you, as a property owner, the opportunity to shape your estate according to your own wishes during your lifetime.

If neither a will nor an inheritance contract exists,intestate succession applies. This takes into account the spouse as well as relatives, and determines which share of the estate goes to whom. Several statutory heirs together form a community of heirs, which we cover further below.

Universal succession: What it means for inherited property

Where several people are entitled to a share of an estate, a property cannot simply be left to one specific person. Instead, so-called universal succession applies: the entire estate passes to the heirs as a single unit.

If you want to ensure that your property goes to a particular person, you have the following options:

• Partition order in the will: You specify which heir is to receive the property as part of the distribution of the estate

• Preferential bequest: You grant one heir a claim to the property that goes beyond their regular share of the inheritance

• Executorship: A neutral third party ensures that your will is carried out according to your wishes

Inheritance tax and tax-free allowances when inheriting property

If the inheritance exceeds the heir's personal tax-free allowance, inheritance tax becomes due in Germany. Particularly for property in sought-after locations, the value can quickly exceed this allowance.

Tax-free allowances by degree of relationship

The level of the tax-free allowance depends on the relationship between the deceased and the heir, and on whether it is a case of inheritance or of a gift. Only the amount exceeding the allowance is taxed:

An important point: These allowances apply per person and reset every ten years. This can make an early gifting strategy tax-efficient in certain cases.

Tax rates and tax classes

If the allowance is exceeded, the tax rate depends on the tax class and the value of the inheritance:

• Tax class I (spouses, children, grandchildren): 7% to 30%

• Tax class II (nieces, nephews, siblings, children-in-law): 15% to 43%

• Tax class III (distant relatives and non-relatives): 30% to 50%

Special case: Inheriting the family home tax-free

Under certain conditions, property can be inherited tax-free even if its value exceeds the allowance. This applies to the so-called family home: the property in which the deceased last lived, and which was the centre of family life. Holiday houses or holiday flats do not fall under this rule.

Further conditions:

• The heir must live in the property themselves for at least ten years after inheriting it

• If the heir is a child who no longer lives in the house, they must move in within six months and then live in the property for ten years

• Anyone who moves out before the ten years have elapsed must pay inheritance tax retroactively

• The tax exemption only applies up to a living space of 200 square metres; any additional floor area is taxable

Leaving property to a community of heirs: risks and challenges

If there is more than one heir, a community of heirs is formed. With property in particular, this can lead to significant conflict – for example, through differing ideas about how the property should be used, or disagreements over how the estate should be divided. If disputes remain unresolved, the community of heirs can become unable to act, which often results in the property standing empty and losing value as a consequence.

Typical points of conflict within communities of heirs include:

A will with clear provisions – such as a partition order or executorship – significantly reduces the risk of conflict. Planning ahead protects not only the value of the property, but also family harmony.

Compulsory portion claims when inheriting property

If you have disinherited a close relative by will or inheritance contract, that person may, under certain circumstances, be able to assert acompulsory portion claim. The compulsory portion amounts to half of the statutory share of inheritance and is paid out exclusively as a cash claim. It does not give rise to any claim to the property itself.

Planning ahead: Gifting property during your lifetime

The future of a property does not have to be decided only in the event of death. Gifting property during your lifetime can make sense for various reasons – for example, to save on tax or to avoid later disputes over the inheritance. To safeguard your own interests, you can set out a right of residence or usufruct in the gift agreement, for yourself or for people close to you.

Please note: If less than ten years pass between the gift and the death, the gift is taken into account when calculating the compulsory portion. Detailed information is available in our guide togifting property.