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Indebted Berlin hikes tax on property sales

This week brought bad news for anyone thinking of buying a flat in Berlin, as city authorities announced they would raise tax on property sales from early next year.

Indebted Berlin hikes tax on property sales
Photo: DPA

Berlin’s Senate passed legislation on Tuesday hiking up sales tax for those buying property in the city, newspaper the Tagesspiegel reported. From January 2014, buyers will have to pay a six percent tax on the sales price, up from the current rate of five percent.

And at the rate property is still changing hands, the Senate estimates next year’s tax hike could bring in an extra €100 million a year for the hopelessly-indebted city.

Despite a recent modest upturn in the city’s fortunes, “poor but sexy” Berlin remains a whopping €63 billion in debt – a figure that when calculated per head, (€22,000) works out as higher than the bankrupt US city of Detroit (€20,000 per head).

Ever-popular with foreigners looking to snap up the city’s last remaining bargains, Berlin’s housing market is still booming nearly a decade after the first rumours began circulating about what was then some of Europe’s cheapest property deals.

Meanwhile, average prices continue to rise each year and now stand at €1,954 per square metre, up from €1,757 in 2012, according to the Berliner Morgenpost newspaper.

This means a 60-metre-square, two-bedroom flat would cost an average of €117,240 today, up from €105,420 last year.

With sales still on the increase – last year 53 percent more flats were taken out of the rental market to be sold than the year before – the increase in property sales tax is seen by the city as the best way to bring in some desperately-needed income, wrote the paper.

The city’s income from property sales tax has more than doubled in the last four years, from €300 million in 2009 to an estimated €680 million in 2013.

READ MORE: Merkel’s East Berlin flat – rent for €55 a night

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TAXES

Do foreigners in Germany owe tax on money that is inherited from overseas?

If you received an inheritance worth at least €20,000 in 2023, there's a good chance that it will affect your taxes this year. Here's how German inheritance tax is applied to foreigners and foreign assets.

Do foreigners in Germany owe tax on money that is inherited from overseas?

Inheritance tax (Erbschaftssteuer) has been collected in Germany since 1906, and it also applies to foreign residents.

This tax is levied on assets, like money or real estate, that are received from a deceased person. 

Germany’s current inheritance tax law has been in force since 1955, and is applied to the total value of all assets that are passed on, excluding diaries, clothing and furniture. 

It also comes with relatively high allowances for close relatives such as spouses and children.

Does inheritance tax apply to foreign assets?

Long-term and permanent residents in Germany will likely be subject to the tax, even when the inheritance is coming from abroad.

Put simply, German inheritance tax is applied when either the deceased or the heir legally resides in Germany at the time that the inheritance is claimed. 

Habitual residence is generally established when one has lived in Germany for six-months, but may be applied sooner in some cases. So the tax does apply to most long-term foreign residents regardless of their specific visa or residency status.

READ ALSO: I just got married in Germany. How does this affect my taxes?

Additionally, German nationals are still considered residents for up to five years after moving abroad.

So an American resident receiving an inheritance from their relative who lived in Germany, for example, may be taxed, and conversely a German resident receiving inheritance from their American relative would also be taxed.

In both of these cases, your inheritance is subject to ‘unlimited tax liability’ – meaning that the entire value of the inheritance is taxed.

If you and the deceased are both legally domiciled abroad, then you may still be subject to ‘limited tax liability’ – meaning that tax is only owed for parts of the inheritance that are located in Germany, such as property or a savings account held in a German bank.

How much inheritance can you receive before it’s taxed?

The amount of tax owed depends on the value of the inheritance and also on one’s relation to the deceased. 

Inheritances are also granted significant allowances in Germany. Allowances refer to the amount of money you can receive without having to pay any tax.

Spouses and registered partners, for example, pay no tax on the first €500,000 worth of inherited assets. Children, step-children and grandchildren whose parents have already passed away are granted a €400,000 allowance, whereas grandchildren with living parents get a €200,000 allowance. Great-grandchildren, parents and grandparents get a €100,000 allowance. All other relatives or unrelated heirs receive a €20,000 allowance. 

Regardless of allowances, all inheritances worth €20,000 or more need to be declared.

Additional allowances apply to specific situations, such as a special pension allowance for spouses or children who don’t receive widow or orphan pensions. These currently amount to €256,000 for spouses and civil partners, and between €10,300 and €52,000 for children, depending on their age.

Immediate family who cared for the deceased before death can apply for up to €20,000 in care allowance.

Additionally, there is a lump sum allowance of €10,300 for “estate liabilities”, such as funeral costs, gravestone, and grave maintenance fees.

Will I be doubled taxed by Germany and my home country?

Germany has Double Taxation Agreements that cover inheritance and estate taxes with the USA, Greece, France, Sweden, Denmark and Switzerland.

In some cases these agreements can override German domestic law, and will likely affect how much tax you owe.

Generally these agreements allow tax payers to avoid double taxation by offsetting the foreign tax against the German tax or vice versa. For example, if you have already paid an inheritance tax on assets coming from the USA, then the amount you paid in US taxes may be taken off the amount that would be owed in Germany.

In this case it would be advisable to seek consultation from a tax professional who is familiar with German tax law and the Double Taxation Agreements Germany has with your country.

How much tax will you owe?

If you received an inheritance that exceeds your allowance level, calculating the amount you owe can be a bit complicated.

READ ALSO: Should you get a tax advisor in Germany – and how much does it cost?

There are three inheritance tax brackets, which are based on your relation to the deceased and have no relation to the tax brackets for income tax. 

Immediate family of the deceased, such as spouses, children or grandchildren are included in tax class I, and can generally expect to be taxed at a rate between seven to 11 percent. Non-related heirs are included in tax class III and can expect to pay a 30 percent tax on inheritances up to €13 million, or 50 percent for inheritances above that.

For more information on Germany’s inheritance taxes, we have a guide to the topic.

You can also use tax calculators like this one by Steuertipps.de, or this one by Steuerklassen.com to get an idea about how much tax you may owe.

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