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– Moving abroad brings many changes, especially when it comes to tax matters. One of the most complex challenges concerns inheritance tax and gift tax. In this blog post, we explain the specific challenges and important considerations you should be aware of.
German inheritance tax law assumes tax liability if a party involved is resident in Germany. This applies to both the testator and the heir as well as the donor and the donee. This means that moving abroad only results in tax advantages if both the testator and the heir or the donor and the donee no longer reside in Germany.
Unlimited tax liability applies if the testator or donor or the acquirer has their domicile or habitual residence in Germany. In this case, the entire inherited or transferred assets are subject to German inheritance or gift tax.
Limited inheritance tax liability applies if neither the testator nor the heir resides in Germany, but certain domestic assets are transferred. These include in particular:
German citizens are considered residents for inheritance tax purposes even if they do not have a domestic residence, provided they have not lived abroad for more than five years. This means that transfers made within five years of moving abroad are subject to unlimited inheritance tax liability. In the case of relocation to the USA, this period is extended to ten years due to the supplementary protocol to the inheritance tax double taxation agreement (DTA).
When considering inheritance tax arrangements in the context of emigration, the existence of a double taxation agreement in inheritance matters between the country of emigration and Germany plays an important role. Important countries with which Germany has such a DTA are:
In order to minimise tax burdens, the following structural considerations should be taken into account:
Restructuring of assets: The aim is to avoid domestic assets in the case of limited tax liability.
Reduction of the inheritance tax base: This can be achieved by encumbering domestic assets with loans and prioritising the repayment of foreign liabilities.
The taxation of inheritances and gifts when moving abroad is a complex issue that requires careful planning and sound advice. It is essential to familiarise yourself with the relevant tax regulations at an early stage and seek professional advice in order to avoid tax disadvantages and find the best solutions.
If you have any questions or would like advice, we are happy to assist you – also via Zoom. Let us analyse your tax situation together and develop the best strategies for your move abroad.