Inheritance: tax-free amount lost due to error in reasoning
Grandson inherits directly from grandpa? That can be expensive, despite good intentions.
When it comes to inheritance tax, it is not only who receives something that counts, but also from whom. This is because the tax-free amounts are based strictly on the degree of kinship. This becomes particularly relevant if a generation is skipped, for example by waiving inheritance.
Example from practice
A grandfather dies. Instead of his son, the grandson inherits directly. The son had previously waived his right of inheritance. The grandson now applies for the higher allowance of €400,000 because he is considered a “child of a deceased child”.
But the tax office says: No. And the Federal Fiscal Court (ruling of 31.07.2024, ref. II R 13/22) confirms this: The higher tax-free amount only applies if the deceased’s child has actually died; a purely legal waiver is not sufficient.
Tax consequences
Instead of €400,000, the grandchild is only entitled to an allowance of €200,000, which potentially results in a higher tax burden. This is because inheritance tax law does not automatically adopt all the legal fictions of civil law.
Our tip
Anyone wishing to transfer larger assets, for example by will or gift, should definitely consider the tax consequences. There are often several ways to achieve a goal under civil law, but not all of them are equally advantageous from a tax perspective.
The grandfather could have first bequeathed the assets to his son, who would then pass them on to his grandson (as a gift), which would have allowed two full tax-free amounts of €400,000 each to be used.
Conclusion: If you want to make the best possible inheritance or gift from a tax perspective, you should check (or have someone check) exactly which order and structure makes sense. Because a supposedly clever approach can end up being expensive.
