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Deferral of inheritance tax: What options are available and what should you bear in mind?

Inheritance tax can place a considerable financial burden on heirs, especially when large assets such as real estate or businesses are inherited. In such cases, German tax law offers the option of deferring the tax in order to avoid liquidity bottlenecks and preserve the estate. But what options are available, and what conditions must be met?

Deferral for the acquisition of business assets or agricultural and forestry assets

Special deferral rules apply to the acquisition of businesses or agricultural and forestry assets. The deferral can be granted for up to 7 years. The first year is interest-free, and from the second year onwards, interest of 0.5% per month (equivalent to 6% per annum) is charged. The continued operation of the business must be at risk if the tax is paid immediately. This deferral is only possible in the case of acquisition due to death. This regulation aims to keep businesses in family hands and not to jeopardise their economic substance through the tax burden.

2. Deferral for the acquisition of real estate

A deferral of inheritance tax may also be advisable in the case of inherited real estate. The deferral can be for up to 10 years and applies to rented residential properties as well as owner-occupied single-family and two-family houses or residential property. In the case of acquisition due to death, the deferral is interest-free; in the case of gifts, interest of 0.5% per month is charged. Tax deferral is only possible if the tax can be raised exclusively through the sale of the property. This regulation is intended to ensure that heirs are not forced to sell their inherited home or other properties in order to pay the tax.

3. General deferral in accordance with Section 222 of the German Fiscal Code

In addition to the special regulations, there is also a general option for deferring inheritance tax. Deferral is possible if immediate collection of the tax would cause considerable hardship. However, there is no legal entitlement to this; the decision is at the discretion of the responsible tax office. Heirs must prove that they are unable to pay the tax from their own assets or from the estate and that they are also unable to take out loans.

Important conditions for deferral

Regardless of the type of deferral, the following basic requirements apply: Heirs must prove that they are unable to pay the tax from their own assets or from the estate. It must be proven that taking out a loan is not an option. A deferral is usually only granted if the sale of inherited assets would be the only way to pay the tax.

How do you apply for a deferral of inheritance tax?

The deferral must be applied for at the relevant tax office. It is important to provide good reasons for the application and to submit the necessary evidence. In the case of special regulations such as the deferral of business assets, there is a legal entitlement if the legal requirements are met.

Conclusion: Planning and advice are crucial

Deferring inheritance tax can significantly ease the burden on heirs and secure the preservation of the estate. However, the regulations are complex and involve requirements that must be well documented. Early estate planning with the involvement of a tax advisor or specialist solicitor can help to avoid liquidity problems and find optimal solutions. Do you have any questions about deferring inheritance tax? Contact us – we will be happy to advise you.

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