Calculation of inheritance tax
January 1, 2010 | 100,00 EUR | answered by Oliver Burchardt
Dear Sir or Madam,
the following situation exists:
On 01.01.2005, the spouses A jointly gifted two rental properties to their sons B and C, each owning 1/2. The properties, in turn, were each owned 1/2 by the spouses. The spouses reserved the lifelong usufruct on their 1/2 shares of the transferred real estate. Upon death, the usufruct right on the deceased's 1/2 share belongs fully to the survivor. The donors were 63 years old (husband) and 61 years old (wife) at the time of the gift (2005).
The value of the transferred properties was approximately 620,000 euros, with a partial amount of approximately 240,000 euros allocated to property 1 and a partial amount of approximately 380,000 euros allocated to property 2. The annual values of the usufruct were stated as 12,211.50 euros for each entitled person for property 1 and 16,234 euros for property 2.
The spouses also have cash assets of around 400,000 euros each; no testamentary provision has been made so far.
In the case of inheritance, gifts made within the last 10 years are taken into account when determining the inheritance value. The special feature of the presented situation is that the gift of the above-mentioned properties took place before 31.12.2008 (old tax exemptions) and an inheritance would now take place under the legally new exemptions.
My questions:
1) Which inheritance tax exemptions apply? Do the old exemptions apply to the gift and the new exemptions to newly acquired inheritance amounts? Would a proportional inheritance tax calculation be made in this case?
2) What are the capital values of the usufruct rights and how are they calculated (please provide a comprehensible calculation method and sources)?
3) How is the inheritance value to be used for calculating inheritance tax in this specific case (please provide a comprehensible calculation method and sources) and how is the inheritance tax determined?
Yours sincerely
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
Please note that the answers are based on the information provided. Adding, changing, or omitting information can affect the tax assessment.
With that said, I will answer your questions as follows:
1.) For an inheritance occurring after the entry into force of the inheritance tax reform, the exemption amounts specified in § 16 ErbStG (the new law) apply. The provision in § 14 ErbStG, which aggregates multiple acquisitions within the last 10 years, does not affect the amount of the applicable exemption amounts.
2.) The valuation of usufructs is determined by § 14 Para. 1 of the Bewertungsgesetz (BewG). According to this, for a lifetime usufruct, the annual values must be multiplied by a multiplier, which is derived from a letter from the Ministry of Finance (currently BMF v. 20.1.2009, Az IV C 2 - 3104/09/1000; please note that this letter is regularly updated, so the multipliers can change at any time). Assuming the ages of the man and woman are 67 and 65 respectively, the multipliers are 10.526 and 12.384. This results in capital values of the usufruct rights (50% each) of €64,269.12 and €85,439.54 for the man, and €75,623.61 and €100,520.93 for the woman.
3.) The value of the inheritance is determined according to § 13 ErbStG.
First, the fair value of the assets must be determined. For the cash assets, this is the nominal value of €400,000.
For the two properties, I will use the values you provided, assuming they were used for gift tax purposes. If not, please use the inquiry function to provide me with the gift tax values.
I assume that the cash assets are to be inherited by the sons. If this assumption is incorrect, please use the inquiry function. However, please note that this can only happen if a corresponding testamentary provision is made, as otherwise the legal succession takes effect.
By deleting § 25 ErbStG, which until December 31, 2008, prohibited the deduction of usufruct as a burden, the following total value of the inheritance is obtained:
Properties before deduction of usufruct (husband's share): €360,000
Reduction due to usufruct: - €149,708.66
Cash assets: €400,000
Total assets: €610,291.34
Of this, half is allocated to each son, i.e., €305,145.67.
Since both sons have an exemption amount of €400,000 according to § 16 Para. 1 No. 2 ErbStG, there is no inheritance tax on the father's inheritance.
The usufruct for the wife is valued at €176,144.54. This results in a total assets of €583,855.46. The distribution of half to the sons results in an inheritance of €291,927.73, which also does not trigger inheritance tax as it is below the exemption amount of €400,000.
Please note that you are entitled to the exemption amount for the inheritance from each parent. Therefore, you do not have to divide the exemption amounts between the inheritance from both parents. Therefore, in the case you described, you essentially benefit from the exemption amounts "twice," resulting in no tax liability.
From a tax perspective, I recommend directly inheriting the cash assets to the sons and not first passing them on to the surviving spouse. Otherwise, the calculation above will shift significantly, as the "second" inheritance would likely exceed the exemption amounts and trigger inheritance tax. However, it should be noted that after 10 years (in 2015), the entire exemption amounts will be applied again, so a tax-free inheritance could still be possible in this scenario.
The surviving spouse inherits the value of the usufruct. If no additional assets are added, no inheritance tax is due on this inheritance due to the exemption amount of €500,000.
I hope this information has been helpful to you.
Best regards,
Oliver Burchardt
Certified Public Accountant
Tax advisor
