Only the Family Home Can Be Inherited Tax-Free
Even if a comparable property is included in the estate, only the family home can be inherited tax-free, provided that certain conditions are met. This was clarified by the Lower Saxony Tax Court in its ruling on 13th March 2024 (Case No.: 3 K 154/23). The heir cannot designate a comparable property in the estate as the family home.
If specific conditions are met, the family home can be inherited tax-free. For the exemption from inheritance tax to apply, the deceased must have lived in the family home up until their death, unless this was impossible due to compelling reasons, such as health issues. Furthermore, the heir must use the family home immediately, generally within six months of the inheritance, for residential purposes and must reside there for at least 10 years. Additionally, the living space must not exceed 200 square meters, according to MTR Legal Rechtsanwälte, which advises on inheritance law.
Several Apartments Inherited
In the case before the Lower Saxony Tax Court, the conditions for exemption from inheritance tax were essentially met. However, the heir did not want to apply the tax exemption for the apartment that his mother had lived in until her death, but for a comparable apartment in the same multi-family house, which also belonged to the deceased mother and was already occupied by the son. The Lower Saxony Tax Court, however, did not agree with this approach.
In the case in question, the deceased owned several apartments in a multi-family house. She lived in the attic apartment, while her son rented another apartment on the second floor. After his mother’s death, the son did not move into the deceased’s apartment but continued to live in his “old” apartment. He rented out the former apartment of his mother.
Tax Exemption Only for Family Home
The son applied for the inheritance tax exemption for the apartment he lived in. Although the separately assessed property values differed, the two apartments were nearly identical in the same building. He argued that it did not make sense for him to move into the attic apartment previously used by his mother, which is why he continued to live in his previous apartment.
The tax office explained that the inheritance tax exemption was only possible for the family home, meaning the apartment used by the mother, and rejected the application. The son’s lawsuit against the tax assessment was also unsuccessful.
Heir Must Live in Family Home
The Lower Saxony Tax Court ruled that the tax office was right in refusing the inheritance tax exemption. The condition for the inheritance tax exemption for the family home is that the deceased used it for their own residential purposes until their death unless they were prevented from doing so for compelling reasons. Additionally, the heir must immediately use the family home for their own residential purposes, the court explained.
This requires that the heir actually moves into the family home and lives there. A mere designation for self-use, such as indicating it on the inheritance tax declaration, is not sufficient if the actual move-in does not follow. If the heir does not use the family home for residential purposes, the inheritance tax exemption is not possible, the Lower Saxony Tax Court clarified. The exemption would not apply even if the heir was prevented from self-use for compelling reasons.
Family Home Cannot Be “Swapped”
The apartment occupied by the son cannot be considered a tax-favored family home since the deceased had not lived there. The attic apartment, which was used by the deceased, is considered the family home. Since the son did not immediately use the family home after the inheritance for his own residential purposes, the inheritance tax exemption does not apply here either. The court further emphasized that a family home cannot be replaced by another apartment in the same building.
This ruling shows that an inheritance tax exemption for a family home is possible, but the conditions must be met.
MTR Legal Rechtsanwälte advises on inheritance tax and other issues related to inheritance law.
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