How does German inheritance tax (Erbschaftsteuer) work?

Erbschaftsteuer (inheritance tax) and Schenkungsteuer (gift tax) are governed by the same law in Germany and apply to transfers of wealth both on death and during lifetime. The heir or gift recipient is liable for the tax.

Tax-free allowances (Freibeträge) apply per recipient per 10-year period: €500,000 for spouses and registered partners, €400,000 for children (per parent, so €800,000 from both parents combined), €200,000 for grandchildren, €20,000 for siblings and other more distant relatives. Gifts made during the 10 years before death are aggregated with the inheritance for threshold purposes, but the allowance resets every 10 years, enabling systematic tax-free wealth transfers to children over time.

Tax rates range from 7% to 50% depending on the value of the inheritance and the relationship between the deceased and the heir. Spouses and children pay lower rates (7%-30%) than unrelated beneficiaries (30%-50%). Family businesses receive significant reliefs designed to allow family-owned firms to pass to the next generation without a forced sale to pay the tax bill. The principal residence can be transferred to a spouse or cohabiting children free of Erbschaftsteuer if the heir continues to live there for at least 10 years.