German Inheritance Tax for Foreigners and Non-Residents

German inheritance tax (Erbschaftsteuer) can apply to a cross-border estate. The relevant scope, allowance, and treaty treatment depend on the deceased's and heir's circumstances, the assets involved, and the applicable tax rules. Do not assume that a non-resident heir automatically receives the same treatment as a resident spouse.

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 Allowance Calculation

Here's where foreigners get caught. Under limited tax liability, the personal allowance is reduced under §16(2) of the Inheritance and Gift Tax Act according to a statutory proportional calculation. It is not a universal flat €2,000 allowance, and the result depends on the assets and prior acquisitions included in the calculation.

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

In some EU/EEA situations, non-resident heirs may be able to request treatment as if they had unlimited tax liability, gaining access to the full personal allowances. This election is not automatic, and it can make the worldwide estate relevant to the calculation. Whether it is advantageous depends on the size and location of the estate.

For non-EU/EEA heirs, treaty and limited-tax rules can affect the allowance and the tax calculation. Do not assume a flat allowance without checking the current rule for the estate and the heir's residence. Germany has inheritance tax treaties with only a handful of countries, including the US (though it is 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), an acquisition generally must be reported to the local tax office (Finanzamt) in writing within three months of learning about the inheritance. An exception can apply when the acquisition is based on a will or inheritance contract opened by a German court, notary, or consul and the relationship is clear; that exception does not apply when the acquisition includes real estate, business assets, certain corporate shares, or foreign assets. When in doubt, make the notification rather than assume the exception.

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. Under §17, surviving spouses may receive an additional tax-free allowance of up to €256,000 for qualifying pension and annuity rights. In limited-tax cases, availability depends on the applicable treaty or reciprocity conditions.

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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