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Transferring your own home tax-free

Tips for inheriting the family home

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If you bequeath your own home, it is possible to remain tax-free under certain conditions. This is because the Inheritance and Gift Tax Act contains a special tax exemption provision. According to this provision, the family home can be transferred tax-free to the spouse or at least partly tax-exempt be bequeathed to children and, if applicable, grandchildren

As Family home within the meaning of the Inheritance and Gift Tax Act (Erbschaft- und Schenkungsteuergesetz) is a developed property

which at the time of transfer is located in the European Union (EU) or in the European Economic Area (EEA),
which is (partially) owned by the transferor, and
in which the transferor himself occupies a dwelling.

During lifetime, a tax-free transfer of the family home is only possible to the spouse and without any retention periods or other restrictions. In addition to the transfer of the family home, all asset transfers related to the family home are also tax-exempt. These are, for example, investments made for maintenance or expansion.

Staying in the house for at least ten years

If the testator has died, the case is a little different: without a testamentary disposition, the spouse inherits the family home tax-free if he or she subsequently lives in it himself or herself for at least ten years. If he or she does not do so without objectively compelling reasons, such as a need for care, the tax exemption ceases to apply retroactively and the inheritance must be taxed subsequently.
The tax exemption also ceases to apply if the spouse is obliged by testamentary disposition to transfer the family home to a third party. The same applies if children or grandchildren inherit the family home. However, only the inheritance of a house of maximum 200 square metres is tax-exempt for them anyway.

Annika Michelsen

Please feel free to contact us if you have any questions on this topic or would like advice on other real estate matters. We look forward to hearing from you.

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