Inheritance and Real Estate – Legal and Tax Considerations in Germany

In general, the acquisition of real estate through inheritance is subject to inheritance tax under the Inheritance and Gift Tax Act (ErbStG). This law stipulates that both financial assets and real estate are taxable, with the tax burden determined by the market value of the property and the degree of kinship (see Finanztip, 2025; Erbrechtsinfo, 2024). The property is typically appraised by the tax office using legally established valuation methods based on comparable values, income, or tangible assets (see Heid Immobilienbewertung, 2024).

A central component of taxation is the statutory tax-free allowances, which vary significantly depending on the family relationship. Spouses can inherit assets of up to 500,000 euros tax-free, and children up to 400,000 euros. For grandchildren, the limit is 200,000 euros, while for unrelated persons, only 20,000 euros remain tax-free (see KSK-Immobilien, 2024; Wüstenrot, 2025). Especially for real estate in sought-after locations, this exemption is often insufficient, resulting in a tax burden.

A special tax benefit applies to the so-called family home. If an owner-occupied property is bequeathed to a spouse or children and continues to be used by the family, it can be transferred completely tax-free under certain conditions. The prerequisite is that the decedent lived in the property themselves until their death and that the heir takes over the property immediately and uses it themselves for at least ten years (see Finanztip, 2025). For children, there is an additional limit of 200 square meters of living space for full tax exemption (see Erbrechtsinfo, 2024). If the property is sold or rented out within this period, the tax exemption is retroactively revoked.

Rented properties are also subject to special regulations. Here, the law provides for a ten percent reduction in the property value, so that only 90 percent of the market value is used for tax purposes. This regulation is intended to reflect the social importance of rental housing (see Heid Immobilienbewertung, 2024; Wüstenrot, 2025).

Despite these tax breaks, inheriting a property often poses a financial challenge in practice. Especially in regions where real estate prices have risen sharply, the tax burden can be substantial. In some cases, heirs are forced to sell all or part of the property in order to pay the inheritance tax due (see Verband Wohneigentum, 2024). This highlights the importance of forward-looking planning.

In addition to tax considerations, legal and organizational issues also play a central role. Heirs must decide whether to accept or renounce the inheritance. Upon acceptance, not only assets but also potential liabilities such as loans or maintenance arrears are transferred to the heir (see Erbrechtsinfo, 2024). Furthermore, if there are multiple heirs, a community of heirs may form, which is often associated with coordination issues and conflicts, particularly when it comes to the use or sale of the property.

Against this backdrop, early estate planning is becoming increasingly important. Through lifetime gifts, tax allowances can be utilized multiple times, as they become available again every ten years. This can significantly reduce the tax burden (see Wüstenrot, 2025). Additionally, instruments such as usufruct rights or transfers to family-owned companies can be considered to transfer real estate in a structured and tax-optimized manner.

In summary, it can be stated that real estate occupies a special position in inheritance matters. It often retains its value and constitutes a significant portion of one’s assets, yet simultaneously entails complex tax and legal requirements. Early planning and sound advice are therefore crucial to minimizing financial risks and efficiently structuring the transfer of assets.