The misconception is that German inheritance tax only matters for ultra-wealthy dynasties. In practice, it becomes relevant much earlier. A founder with appreciating company shares, a family with property in a strong market, or an entrepreneur with cross-border assets can create a sizeable tax exposure long before they would consider themselves “very wealthy”. German inheritance and gift tax applies to inheritances, lifetime gifts, and certain other transfers, with taxable value measured under the valuation rules in the and BewG framework. This guide is the foundation layer. It explains what is taxed, which allowances and reliefs exist, and where founders and family business owners usually misjudge their exposure. For the deeper planning layer after this article, read “”. For wider German tax context, also see “”. What changed in 2026
As of the current consolidated text on , the German Inheritance and Gift Tax Act was last amended on 2 December 2024. There is no published 2026 rewrite of the core allowance table or rate table. The real point to monitor is constitutional scrutiny of the business-asset relief regime. The Federal Constitutional Court’s planned decisions materials list case 1 BvR 804/22, which asks whether the preferential treatment of business assets under the 2016 inheritance tax rules is compatible with the Basic Law. For founders, the practical takeaway is simple: do not build a succession strategy on the assumption that business relief will always remain politically and constitutionally untouched. Even when no overhaul has been enacted yet, a live constitutional challenge is enough to justify earlier planning, better documentation, and cleaner governance.
How German inheritance tax works at a high level
Who is taxed and when
German inheritance tax is not limited to what passes on death. Under § 1 ErbStG, the tax also covers lifetime gifts. That matters because many of the best planning tools involve gifts made years before death, not last-minute will drafting.
Germany’s tax reach is also broader than many internationally mobile families expect. Under § 2 ErbStG, unlimited tax liability can arise where the donor, deceased, or beneficiary has a German residence or habitual abode. The law also catches certain German nationals for a period after moving abroad. That is why a family with one foot in Germany and one foot elsewhere should never assume that a foreign address alone solves the issue.
Why relationship matters so much
In Germany, inheritance tax is not just about how much is transferred. It is also about who receives it. Relationship drives both the allowance and the rate. A surviving spouse and a child are treated far more favourably than a sibling, a distant relative, or an unrelated beneficiary. The same asset can therefore produce very different tax outcomes depending on who inherits it.
Valuation is where many founders get surprised
The tax base is not what you originally paid for an asset. It is based on the taxable enrichment of the recipient, with valuation determined under § 12 ErbStG and the general valuation rules. In plain English, that means today’s value matters. If your shares were worth very little five years ago but are now worth several million on paper, inheritance tax will look at today’s number, not your historical cost.
This is one of the biggest reasons founders get caught off guard. Their wealth is often concentrated in an illiquid asset. The value is real for tax purposes, but the cash is not yet there.
What do you actually owe in practice?
The cleanest starting point is this:
1.Work out what the recipient actually receives.
2.Value those assets under the tax rules.
3.Deduct allowances and any specific exemptions or reliefs.
4.Apply the relevant tax class and rate table.
That sounds simple, but the details matter. Earlier gifts from the same person within ten years are added back for the calculation. Reliefs for a family home or business assets can change the result dramatically. And if the estate contains a business, a property portfolio, or cross-border elements, the documentation often matters almost as much as the numbers.
A simple illustration makes the structure clearer. If a child inherits assets worth €1.2 million and no special relief applies, the first €400,000 is generally covered by the child allowance under § 16 ErbStG. That leaves €800,000 taxable before looking at any further exemptions, deductions, or reliefs. The relevant Class I rate bands in § 19 then apply to the taxable acquisition.
Allowances (Freibeträge) that reduce taxable transfers
Allowances for spouses and registered partners
The headline allowance most people know is the spouse or registered partner allowance: €500,000 under § 16 ErbStG. That is significant, but many families stop there and assume the job is done. It rarely is. If the family home, company shares, and investments are all transferred together, €500,000 can disappear quickly.
There is also a point many people miss. In inheritances, not gifts, a surviving spouse or registered partner can in principle also benefit from a special maintenance allowance of €256,000 under § 17 ErbStG, subject to offset rules where non-taxable pension or maintenance entitlements exist. For some families, that is a meaningful extra buffer.
Allowances for children, grandchildren, and others
For children, the standard allowance is €400,000. Grandchildren generally have €200,000, while many other recipients fall to €20,000. That drop is where a lot of tax exposure appears. A transfer that is manageable between spouses or parents and children can become far more expensive once siblings, nieces, nephews, or unmarried partners enter the picture.
This is also why family ownership and succession planning cannot be separated. The tax law is not neutral between family members. It clearly favours close family relationships.
The practical meaning of the 10-year reset for gifts
Germany’s so-called 10-year reset is often explained too loosely. The real rule in § 14 ErbStG is that multiple transfers from the same person within ten years are aggregated for tax purposes. In practical terms, that means earlier gifts are added back when a later transfer is taxed. This is why people say allowances “reset” after ten years. The phrase is useful, but the legal mechanism is aggregation, not a magical fresh allowance every time you split a transfer into smaller pieces.
For high earners, that matters enormously. A gifting strategy only works when it is sequenced properly. Done early, it can spread value across multiple ten-year periods. Done late, it often provides very little benefit.
Reliefs that can materially reduce tax
Family home relief
Family home relief is one of the most valuable exemptions in the German rules, but it is also one of the easiest to misunderstand. Under § 13 ErbStG, transfers of the family home between spouses or registered partners can be tax-exempt in certain situations. On death, a surviving spouse or registered partner can also benefit if the home qualified as the family home and the survivor uses it themselves. Children can also qualify on inheritance, but only up to 200 square metres of living space, and the self-use requirement matters. In both spouse and child cases, the exemption can be lost retrospectively if the beneficiary stops using the property as their own home within ten years, unless an exception applies.
This is why the family home exemption should never be treated like a loose lifestyle rule. It is a technical relief with conditions.
Business-asset relief: the key issue for founders
For founders and family business owners, the most important relief sits in §§ 13a to 13c ErbStG. The headline structure is straightforward. Qualifying business assets can receive an 85% relief as the standard model, and there is also an optional 100% model with stricter conditions. The official text of § 13a states that qualifying assets remain 85% tax-free, subject to the statutory conditions, and it links that relief to an overall acquisition threshold of €26 million before the large-acquisition reduction rules in § 13c come into play.
The critical issue is that not every asset inside a company is automatically privileged. § 13b defines what counts as qualifying assets, and the 100% option is stricter than the standard model. The higher relief is attractive, but it comes with more demanding conditions, including longer wage bill and retention mechanics. In other words, this is not a free pass for “any company I own”.
This is also the exact area under constitutional scrutiny in case 1 BvR 804/22. So for founders, business relief is both the most powerful part of the system and the least sensible place to rely on assumptions.
Charitable giving and other serious exemptions
Charitable giving appears in serious succession planning because § 13 ErbStG includes tax exemptions tied to qualifying church, charitable, or benevolent bodies. That does not make charity a tax trick. It means that where philanthropy is a genuine goal, the law can support it. The same section also contains a range of other targeted exemptions that matter in specific cases, including the family home rules mentioned above.
There is one more property point worth knowing. Under § 13d ErbStG, qualifying residential property that is let for residential purposes is generally taken into account at 90% of its value. It is not a full exemption, but it can still materially change the numbers for families with rental property.
What founders should watch more closely than everyone else
If your estate is mostly cash and listed investments, the planning exercise is usually numerical. If your estate is a business, it becomes structural.
A founder’s problem is usually not “how do I reduce the rate?” It is “how do I stop paper value becoming a cash problem for my family?” Company shares can carry significant taxable value without providing the liquidity needed to pay the bill. That is why governance, valuation timing, shareholder agreements, and family succession are part of the tax conversation, not separate from it.
That is also where Richmond Blackwood’s wider content cluster becomes useful. For the advanced planning layer, read “”. For international family structures, read “”. For cross-border entity risk, read “”. For a real case study in long-term family control, read “”. And for the governance side of family ownership, read “”. Practical steps
Step 1: inventory your assets properly
Start with the obvious, then go deeper. Shares, property, cash, investment accounts, crypto, shareholder loans, foreign holdings, trusts, and family partnerships all belong in the picture. A succession plan built on incomplete asset mapping usually fails before the tax analysis even starts.
Step 2: identify which reliefs are realistic, not theoretical
Ask three basic questions.
First, who is likely to inherit what?
Second, which allowances actually attach to those people?
Third, which exemptions or reliefs could genuinely apply to those assets?
That exercise often removes a lot of confusion. It also prevents families from assuming that a company structure or overseas element automatically solves German tax exposure.
Step 3: plan documentation early
Reliefs are easier to claim than to defend. If you are relying on family home relief, self-use needs to be clear. If you are relying on business-asset relief, ownership, asset mix, and ongoing compliance matter. If you are relying on gifting over time, previous transfers need to be tracked cleanly. German inheritance tax planning rewards documentation far more than improvisation.
Checklist: inheritance tax relief eligibility
Use this as a quick decision-support check before moving to detailed planning.
1.Do you know the current value of your main assets, not just their historic cost?
2.Do you know who is intended to receive them?
3.Do you know the allowance attached to each intended beneficiary?
4.Have there been gifts from the same person within the last ten years?
5.Does any property potentially qualify as a family home under § 13?
6.Does any business interest potentially qualify under §§ 13a to 13c?
7.Is there enough liquidity in the estate if relief is denied or reduced?
8.Are there cross-border factors that could keep Germany in scope even after a move abroad?
Common mistakes
Leaving valuation and ownership structure until later
Families often wait until an exit is near, a health event occurs, or a will is being updated. By then, the value may already have concentrated too far for the most efficient planning options.
Assuming foreign structures automatically reduce German tax
They do not. Germany looks at legal scope, tax residence, valuation, beneficiary status, and the actual relief rules. A foreign company or trust may help governance in the right case, but it does not override the German inheritance tax system by itself. That is why cross-border families should read “Using Offshore Entities and Legally Optimising Taxes” and “Should You Create a Trust? What Founders, Professionals and International Clients Must Know” with a German tax lens, not a marketing lens.
Ignoring liquidity planning
This is the real commercial problem. A family can be wealthy on paper and still be forced into a sale because there is no liquid cash available to pay tax, fees, and related costs on time.
Conclusion
German inheritance tax is not especially hard to understand at a headline level. What makes it hard in real life is the interaction of valuation, relationship, relief conditions, and timing.
For a spouse, a child, and a founder with business shares, the answer to “what do I actually owe?” can be completely different even inside the same family. That is why this topic is less about finding one clever tactic and more about understanding the order of operations: value first, allowances second, relief eligibility third, and documentation throughout.
If you want the planning layer after this foundation guide, the natural next read is “How to minimise inheritance tax in Germany (advanced planning guide)”. That article goes deeper into gifting timelines, governance, trusts, charities, and succession structure design.
Disclaimer
This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax outcomes depend on your facts, residency position, entity types, and the jurisdictions involved. Always take advice from qualified professionals before restructuring, signing transaction documents, or completing a disposal.
