Real estate transfer tax Inheritance community
July 2, 2013 | 50,00 EUR | answered by StB Patrick Färber
Siblings A and B own a house X and a plot of land Y as joint heirs after the death of their father.
The joint inheritance is to be dissolved for the house X (A buys B's half), while they both want to continue owning the plot of land together.
Please verify if the planned procedure is optimized for property tax purposes or if there is a better alternative:
1. The joint inheritance is dissolved. A buys both properties from B. (Property tax exempt according to §3 Para 3?)
2. Subsequently, B buys back half of the plot of land Y from A. (Subject to property tax).
After consulting with three different tax office officials, the responsible tax office provided three different responses ranging from "all taxable in any case" to "all exempt".
Dear questioner,
I would like to answer your question in the context of an initial consultation, following the rules of the forum and based on your information as follows:
At least I can already say that I do not hold a 4th opinion, as all opinions already exist:-)
It is clear from the wording of the law and the commentary that the division of the estate that took place as part of a (partial) settlement is exempt from real estate transfer tax, § 3 No. 3 GrEStG. However, it is essential that:
- both houses are objects that belonged to the father's estate
- and thus constitute assets bound by joint ownership of the heirs' community.
- it must be a distribution within the framework of a notarial (partial) settlement agreement.
This means that the objects, for example, must not have been transferred through anticipated succession before the father's death.
As long as the heirs' community continues to exist, and estate assets are divided in separate transactions (such as here, only House X, while House Y is supposed to remain in the heirs' community according to the information provided), the tax exemption under § 3 No. 3 GrEStG applies. Overall, this provision aims to favour estate settlements or properties that belong to an estate, as the heirs' community is a "random community" (or can be).
Transfers that take place after the estate settlement should be distinguished. These are potentially subject to real estate transfer tax!
It is also important to note that an estate settlement by converting an estate object from joint ownership to fractional ownership will result in the "consumption" of the tax exemption under § 3 No. 3, with the consequence that subsequent transfers of fractions become subject to real estate transfer tax.
In summary:
Your first process mentioned is indeed real estate transfer tax-free.
Your second process would be subject to real estate transfer tax.
Alternative:
It is unclear why you would dissolve the heirs' community first to use § 3 No. 3 GrEStG and then transfer it back subject to real estate transfer tax. Only the tax office would be pleased, as under the conditions you have set forth:
- House X is to definitively go to B (partial settlement of estate assets)
- and Property Y is to remain in the heirs' community as assets bound by joint ownership,
I would advise you to have a notarial partial settlement drawn up by a notary for House X = NO REAL ESTATE TRANSFER TAX.
If the siblings ever decide or agree on who will receive Property Y, then the heirs' community can be definitively dissolved = ONCE AGAIN or STILL REAL ESTATE TRANSFER TAX-FREE.
Transferring back and forth does not seem sensible and will trigger real estate transfer tax in the second step as well.
Note: Since B is buying from A, there is an income tax-relevant transaction. B has acquisition costs and A has a disposal proceeds of the same amount. Therefore, A may need to check the speculation period (10 years, § 23 EStG), with the acquisition or creation date of the father/parents being decisive here....
I hope you like this opinion!
I wish you a pleasant evening.
Patrick Färber
Tax consultant
patrickfaerber@arcor.de
