Judgment of Finanzgericht Niedersachsen, case no.: 3 K 14/23
It is only the plot of land on which the family home sits that can be exempt from estate tax. That was the verdict of Lower Saxony’s fiscal court – the Finanzgericht (FG) Niedersachsen – in a ruling from July 12, 2023. In cases involving larger plots, only a reasonable area is tax exempt (ref.: 3 K 14/23).
Provided certain criteria are met, it is possible to pass on a family home without having to pay tax. It is important to note when it comes to estate tax that the tax office responsible for assessing the value of real estate is the one in whose district the property is located. The assessed values are then included in the estate tax notice. On the other hand, the question of whether a family home is tax exempt falls within the purview of the relevant tax office responsible for dealing with estate tax. In other words, it is possible for more than one tax office to become involved in cases concerning the inheritance of real estate, explains commercial law firm MTR Legal Rechtsanwälte, whose practice includes tax law.
One home, multiple plots
Such were the facts of a recent case heard by the FG Niedersachsen. The heir had inherited six plots of land, five of which were consolidated into one property in the land register. However, the tax office responsible for evaluating the property only combined three of the five plots in its assessment notice aimed at separately establishing the real estate value, and in doing so ascertained their combined value. It also stated that the tax exemption for the family home may only be granted with respect to the plot of land on which the house is built, and this view was shared by the tax office responsible for assessing for estate tax.
Accordingly, the exemption from estate tax was granted solely for that single plot of land and not for the combined assessed value of the three plots. However, the heir was demanding that the exemption be applied to the combined assessed value of the three plots.
Only plot on which family home built exempt from estate tax
His claim was ultimately dismissed by the FG Niedersachsen, which, like the tax office, took the view that only the plot on which the family home was actually built should be exempt from estate tax. The court reasoned that the exemption ought to be limited to an existing smaller area of land as delineated in the land survey register. If no such area exists, a partial section of a plot could also be considered. Otherwise, this could lead to a double tax benefit for close family members, who would be able to benefit from both high tax allowances and the tax exemption for the family home.
Appeal to the BFH pending
The plaintiff has since lodged an appeal, which is pending before Germany’s highest tax court, the Bundesfinanzhof (BFH) (ref. no.: II R 27/23).
MTR Legal Rechtsanwälte advises on a wide range of issues relating to tax law, including estate tax.
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