German Inheritance Tax for Foreigners and Non-Residents

German inheritance tax (Erbschaftsteuer) applies whenever either the deceased or the heir has a connection to Germany — and the rules for foreigners are significantly less generous than for German residents. Non-resident heirs can face a tax-free allowance of just €2,000, compared to €500,000 for a spouse living in Germany. Understanding which rules apply to you is the difference between owing nothing and owing tens of thousands of euros.

When Does German Inheritance Tax Apply?

Germany taxes inheritances under two triggers:

Unlimited tax liability (unbeschränkte Steuerpflicht): Applies when either the deceased or the heir was a German tax resident at the time of death. "Tax resident" means having a domicile (Wohnsitz) or habitual residence (gewöhnlicher Aufenthalt) in Germany. Under this regime, the entire worldwide estate is taxable, regardless of where assets are located.

Limited tax liability (beschränkte Steuerpflicht): Applies when neither the deceased nor the heir is a German tax resident, but the estate includes German-situs assets — primarily real estate, shares in German corporations, or German business operations. Only the German assets are taxed.

This means an American living in Texas who inherits from a German expat relative living in Munich faces unlimited tax liability on the entire estate, while an American inheriting only a German rental property from a non-resident parent faces limited liability on just that property.

Tax Classes and Rates

German inheritance tax rates depend on the relationship between the deceased and the heir:

Rates are progressive — the percentage increases as the taxable inheritance (after allowance) grows. A child inheriting €600,000 pays 7% on the first €75,000 over the allowance, 11% on the next €300,000, and so on.

The Non-Resident Trap: €2,000 Allowance

Here's where foreigners get caught. Under limited tax liability, the personal tax-free allowance drops to a flat €2,000 — regardless of the relationship. A spouse, a child, a sibling, an unrelated heir: all get the same €2,000.

Compare this to unlimited liability, where a spouse gets €500,000 tax-free. The difference is staggering.

However, non-resident heirs within the EU/EEA can elect to be treated as if they had unlimited tax liability, gaining access to the full personal allowances. This election isn't automatic — the heir must actively apply for it, and it means the entire worldwide estate (not just German assets) becomes taxable. Whether this is advantageous depends on the size and location of the estate.

Non-EU/EEA heirs (Americans, Australians, Canadians) do not have this election option. They're stuck with the €2,000 allowance on German-situs assets, unless a bilateral tax treaty provides otherwise. Germany has inheritance tax treaties with only a handful of countries, including the US (though it's a limited treaty focused on double taxation relief, not allowance equalisation).

The 3-Month Notification Rule

Under §30 of the Inheritance and Gift Tax Act (ErbStG), every heir must notify the local tax office (Finanzamt) in writing within three months of learning about the inheritance. This notification is mandatory even if the estate value falls well below the tax-free allowance.

The notification is not a tax return — it's a simple written notice stating who died, who inherits, and what the approximate estate value is. The tax office then decides whether to request a formal inheritance tax return (Erbschaftsteuererklärung).

Failing to notify triggers penalties and interest. Since German banks, insurance companies, and notaries are legally required to report the deceased's asset balances to the tax office independently, the Finanzamt will know about the estate whether the heirs notify or not.

Reducing the Tax Bill

Double taxation relief. If you pay inheritance tax in both Germany and your home country, bilateral tax treaties (where they exist) or domestic credit mechanisms may prevent you from being taxed twice on the same assets.

Spousal pension exemption. Surviving spouses receive an additional tax-free allowance of up to €256,000 for pension and annuity rights that pass outside the estate. This is available under both unlimited and limited liability.

Real estate reduction. Family homes inherited by a spouse or child and used as a primary residence for 10 years can be fully exempt from inheritance tax under certain conditions. This applies only to German real estate occupied by the heir — not investment properties.

Professional advice matters. For estates above the tax-free thresholds, a German Steuerberater (tax adviser) with experience in cross-border inheritance is essential. The interaction between German inheritance tax, the deceased's income tax obligations, and the heir's home country tax rules creates enough complexity that self-administration risks costly errors.

The Someone Died in Germany: English Speaker's Emergency Guide includes an inheritance tax reference section with the current rate tables, allowance tiers, and a checklist of the notification requirements for foreign heirs.

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