Who pays German inheritance tax on a property when the heirs live abroad?

Germany taxes the property, not the person

Most countries tax an inheritance because the deceased or the heir lived there. Germany does that too, but it adds a second hook that expat owners rarely see coming: it taxes German assets regardless of where anyone lives. § 2 Abs. 1 Nr. 3 ErbStG creates what the law calls beschränkte Steuerpflicht, limited tax liability. It applies when neither the deceased nor the heir was resident in Germany at the time of death, and it reaches every asset listed as Inlandsvermögen in § 121 BewG. Real estate in Germany is the first item on that list.

So an engineer who bought a flat in Munich, moved to Singapore, and dies there leaves a German tax case behind. Her children in Singapore owe German inheritance tax on the Munich flat. Not on her Singapore bank account, not on her index funds, not on a small shareholding in a German company: § 121 BewG does not list bank deposits, listed securities or holdings below 10 percent. It does list German land, German business assets with a permanent establishment, and loans secured on German real estate.

The other way round works the same. A German-resident parent who leaves a flat in Berlin to a child in Canada triggers full, unlimited liability because the deceased lived here (§ 2 Abs. 1 Nr. 1 ErbStG), and Germany also keeps that unlimited liability for five years after a German citizen leaves the country. The limited-liability case on this page is the one where everyone has already been abroad for a while. That is the situation an LDP client who later leaves Germany, together with heirs abroad, will be in.

The rule is symmetrical and it is not a loophole: Germany is the situs state and every treaty Germany has signed leaves the situs state its right to tax real estate. What changes with residence is not whether the property is taxed, but how large the allowance is and whether anything abroad is counted alongside it.

Classes, rates and allowances: the numbers that apply to everyone

German inheritance tax is progressive and depends on the relationship between the deceased and the heir, not on the asset. § 15 ErbStG sorts heirs into three classes. Class I is the spouse or registered partner, children and stepchildren, grandchildren, and parents when they inherit on death. Class II is siblings, nieces and nephews, parents-in-law, children-in-law, divorced spouses, and parents when they receive a lifetime gift. Class III is everyone else, which includes an unmarried partner of thirty years.

Two mechanics matter for planning. First, the allowance renews every ten years, and § 14 ErbStG adds up every gift from the same person within a ten-year window before the allowance is applied. Second, the rate applies to the whole taxable amount, not in slices, softened only by a hardship formula in § 19 Abs. 3 ErbStG at the bracket edges. A child inheriting €700,000 of taxable value pays 19 percent on all of it, not 7 percent on the first €75,000.

Those figures are the same for a resident and a non-resident heir. What differs is the next section.

The allowance is cut pro rata, and that is where non-resident families lose most

Until 2017 a non-resident heir got a flat €2,000 allowance and could opt into the full one. The European Court of Justice struck that down as discriminatory (Hünnebeck, C-479/14), and the German answer since then is § 16 Abs. 2 ErbStG. The full class allowance applies in principle, but it is reduced by the share of the acquisition that Germany is not taxing. The reduction counts everything the heir receives from the same person at the same time and within the previous ten years, wherever it is located.

In practice: the allowance available against the German flat equals the class allowance multiplied by the German-taxable share of the total estate. A large foreign estate therefore shrinks the allowance that is left for the German property, even though Germany taxes none of the foreign estate. Here is what that does in a worked example.

The example leaves out the €15,000 lump sum for estate costs (§ 10 Abs. 5 Nr. 3 ErbStG), which applies in a limited-liability case too; with it the taxable amount is €417,000 and the tax €62,550.

The same flat costs the same child four times as much tax because the parent held a large portfolio outside Germany. Nothing about the flat changed. That is the mechanism that owners abroad most often have not been told about, and it is the reason the planning steps at the end of this page are worth reading before, not after, an estate is opened.

A second consequence follows from the ten-year window: a lifetime gift of the flat to a child abroad is also a limited-liability case, with the same pro-rata cut, so gifting does not escape the rule. It can, however, split the value across two allowances if the two transfers are more than ten years apart.

What reduces the taxable value of the property

• Let residential property is assessed at 90 percent (§ 13d ErbStG). The 10 percent discount applies to property in Germany and the EU, and to third-country property only where that country exchanges tax information to the OECD standard. A flat let on the day of death qualifies; a flat empty between tenants can still qualify if the owner can prove it was being re-let (adverts, viewings, renovation orders). A flat kept empty does not.
• Debts secured on the flat are deductible, in proportion. Under limited liability, debts linked to the German flat are deductible (§ 10 Abs. 6 S. 2 ErbStG), and for deaths from 2025 other debts and the estate costs are deductible pro rata to the German share of the estate (§ 10 Abs. 6 S. 3 to 5 ErbStG, as amended by the Jahressteuergesetz 2024). Where the flat is assessed at 90 percent, the debt linked to it is deductible only at the same 90 percent (§ 10 Abs. 6a S. 1 ErbStG). A €200,000 mortgage on the flat in the example reduces the taxable value by €180,000, to €252,000, which falls into the 11 percent band: about €27,700 tax instead of €64,800, roughly €37,000 less before any change to the pro-rata allowance. Paying a German mortgage down early has a tax cost at death that most owners never price in.
• The family home exemption rarely helps a non-resident heir. § 13 Abs. 1 Nr. 4b and 4c ErbStG exempts a home the deceased lived in until death if the surviving spouse or a child moves in without delay and stays for ten years, capped at 200 square metres of living space for children. An heir who lives abroad and keeps living abroad cannot meet the occupation condition.
• The tax value can be challenged with an appraisal. Since the valuation reform that took effect on 1 January 2023, the statutory methods in §§ 176 to 198 BewG use parameters aligned with the ImmoWertV 2021 and produce values close to market, sometimes above it for older buildings. § 198 BewG lets the heir prove a lower value with a qualified appraisal or with an actual sale within one year of the date of death.
• Funeral and estate settlement costs are deductible in a limited-liability case too: the actual costs pro rata to the German share of the estate, or the lump sum of €15,000 without proof, which the statute leaves untouched (§ 10 Abs. 6 S. 5 and 6 ErbStG, for deaths from 2025).

Foreign inheritance tax on the same flat is not credited

This is the part that turns a German tax into a double tax. § 21 ErbStG, the foreign tax credit, applies by its wording only in den Fällen des § 2 Abs. 1 Nr. 1, that is, to heirs with unlimited German liability. A non-resident heir taxed on the Munich flat by Germany and taxed again on the same flat by her own country gets no German credit. Whether the other country credits the German tax depends entirely on that country's rules.

Treaties change this in only a few places. Germany has separate inheritance tax treaties with Denmark, France, Switzerland and the United States, a treaty with Greece that covers only movable estate, and a comprehensive 1992 treaty with Sweden. Every one of them leaves real estate to the state where it lies, so the German tax on the flat stays; what the treaty does is oblige the residence state to credit it or exempt it. The Swedish treaty has a twist worth knowing: Sweden abolished its inheritance and gift tax in 2005, and the Bundesfinanzhof held on 24 May 2023 (II R 27/20, II R 28/20, II R 29/20) that a person is not treaty-resident for gift tax purposes in a state that levies no such tax, so the treaty no longer shields a transfer from Germany.

Heirs resident in the United Kingdom, India, the UAE, Singapore, Australia, Canada or anywhere else without a German inheritance tax treaty are in the no-treaty case. The UK, for example, taxes the worldwide estate of a long-term UK resident (UK resident in at least 10 of the previous 20 tax years, the test that replaced domicile on 6 April 2025) and grants unilateral credit for foreign tax on the same asset; the UAE and Singapore levy no inheritance tax at all, so there is nothing to credit and the German tax is simply the tax. Knowing which of these three situations applies is the first thing to establish, and it depends on where the deceased and the heirs live.

What happens after the death, step by step

• Within three months of learning of the inheritance, each heir must notify the tax office (§ 30 Abs. 1 ErbStG). For a limited-liability case the competent office is the one for the district where the property lies (§ 35 Abs. 4 ErbStG with § 19 Abs. 2 AO). The office then decides whether to request a return (§ 31 ErbStG); it usually does when real estate is involved.
• The land register is not corrected automatically. To be entered as owner the heir must prove succession to the Grundbuchamt, by a German certificate of inheritance (Erbschein, § 2353 BGB), by a notarial will with the court's opening record, or by a European Certificate of Succession (§ 35 GBO). The correction is free of court fees if it is applied for within two years of the death (GNotKG, Kostenverzeichnis Nr. 14110, note 1); after that the normal fee on the property value applies.
• Which law governs who inherits is a separate question from which state taxes. For deaths since August 2015 the EU Succession Regulation 650/2012 applies the law of the deceased's last habitual residence to the whole estate, including a German flat, unless the deceased chose the law of their nationality in a will (Art. 21 and 22). German courts apply the Regulation even where that residence was outside the EU (Art. 20). The United Kingdom, Ireland and Denmark do not take part, so a UK-resident owner's estate can be split between English law for movables and German law for the flat.
• A sale to pay the tax is possible but not free. The tax is due on the date set in the assessment, usually one month after it. If the heirs sell the flat to fund it, the sale itself is an income tax event unless the deceased's holding period was already over ten years, see the next section.

Income tax follows the property into the next generation

Germany has no step-up in basis on death. The heir takes over the deceased's depreciation position: § 11d EStDV makes the heir continue the same AfA on the same original cost, so a flat bought in 2010 for €300,000 and inherited in 2030 at a value of €600,000 keeps being depreciated on €300,000 less land. On the other hand the heir also inherits the clock: under § 23 Abs. 1 S. 3 EStG an inheritance is not an acquisition, so the ten-year speculation period runs from the deceased's purchase date. A flat the parent bought twelve years ago can be sold by the child the day after the funeral without German capital gains tax; a flat bought four years ago cannot.

Rental income keeps being German-taxable for a non-resident heir under § 49 Abs. 1 Nr. 6 EStG, with the same non-resident return the owner filed. None of this is new to an LDP client, but the timing question it raises is: whether it is better for the family that the flat is sold by the parent, gifted, or inherited depends on where the ten-year clock stands at each of those moments.

What an owner abroad can do now: five decisions

• Find out which of the three cases the family is in. Treaty country, unilateral credit country, or no-tax country for the heirs. It decides whether the German tax is a cost on top or the only tax, and it depends on where the owner and the children live, which changes.
• Run the pro-rata calculation on the real numbers. The allowance for the German flat depends on the size of everything else the same heir will receive. An owner with a large estate abroad and one German flat should expect the allowance for that flat to be a fraction of €400,000, and can plan gifts in ten-year tranches to reset it.
• Keep the mortgage, or at least do not rush to clear it. A loan secured on the flat is deductible under limited liability, at 90 percent while the flat is let. Early repayment converts a deductible debt into a taxable equity.
• Write a notarial will in German with a choice of law, and say where the original is. A German notarial will replaces the Erbschein for the land register, saves months and the court fee on the estate value, and a choice of the law of nationality under Art. 22 of the Regulation removes the risk that a move abroad silently changes who inherits the flat.
• Book a valuation reflex. Note now which comparable sales exist for the building, because § 198 BewG lets the heirs prove a lower value with an appraisal or a sale within a year, and the statutory value since 2023 is often at or above market for older stock.

If the flat is let, keep it let: the 10 percent reduction under § 13d ErbStG depends on the facts on the day of death, and a flat empty between tenants keeps it only if the re-letting effort can be proven.

Limitations and what we do not know

• We are a property investment firm, not a tax adviser or a law firm. The paragraphs above are checked against the statutes as of September 2026; the application to a specific family, especially the interaction with the heir's own country, needs a cross-border adviser. We can name English-speaking ones.
• The worked example uses the class I rate scale without the hardship adjustment of § 19 Abs. 3 ErbStG and ignores the funeral and administration cost deductions; both would change the result by a few thousand euros, not its order of magnitude.
• We have not verified the current scope of the Greek treaty beyond the standard description that it covers movable estate only, nor whether the Danish and Swiss treaties extend to gifts. Anyone in those four treaty situations should read the treaty text, not this page.
• The valuation reform of 2023 raised statutory values unevenly by city and building age; how far above market a given Munich or Berlin flat is valued is not something we can state in general.
• The rules on deductible debts and estate costs in limited-liability cases quoted above apply to deaths from 1 January 2025 (§ 37 Abs. 21 ErbStG); for earlier deaths the narrower previous rule applies.

What would change this answer

• A change to § 16 ErbStG allowances or to the pro-rata rule in Abs. 2; the allowances have been fixed since 2009; the Federal Constitutional Court heard a challenge to the allowances, rates and valuation on 12 October 2026 (and one on the business-asset relief on 13 October), with a decision expected in 2027 at the earliest.
• A new inheritance tax treaty, or the termination of one; the list has been stable for decades but the Swedish case shows a treaty can stop working without being terminated.
• A change to the valuation rules in §§ 176 to 198 BewG, which last moved on 1 January 2023 and drove statutory values up.
• A court decision on § 21 ErbStG extending the foreign tax credit to limited-liability heirs; the discrimination argument that removed the €2,000 allowance in 2017 has not yet been run against the credit rule.

Last reviewed September 10, 2026. Reviewed by Nicholas Runtic and Abdelrahman Maged, co-founders of LDP Group, before publication and at every review date. We review this page every quarter and whenever the ErbStG, the BewG or the treaty list changes. If you are reading it more than three months after the date above, check § 16 Abs. 2 ErbStG and the BMF treaty list before relying on a figure.

Frequently asked questions

Sources

• § 2 ErbStG, persönliche Steuerpflicht (Bundesministerium der Justiz, gesetze-im-internet.de)
• § 10 ErbStG, steuerpflichtiger Erwerb, Abs. 6 and 6a on deductible debts under limited liability (as amended by the Jahressteuergesetz 2024)
• § 13d ErbStG, Steuerbefreiung für zu Wohnzwecken vermietete Grundstücke
• § 15 ErbStG, Steuerklassen
• § 16 ErbStG, Freibeträge, Abs. 2 pro-rata reduction
• § 19 ErbStG, Steuersätze
• § 21 ErbStG, Anrechnung ausländischer Erbschaftsteuer
• § 30 ErbStG, Anzeige des Erwerbs
• § 121 BewG, Inlandsvermögen
• § 198 BewG, Nachweis des niedrigeren gemeinen Werts
• § 23 EStG, private Veräußerungsgeschäfte, Abs. 1 S. 3 on inheritance
• § 11d EStDV, AfA bei unentgeltlich erworbenen Wirtschaftsgütern
• § 35 GBO, Nachweis der Erbfolge
• Regulation (EU) No 650/2012 on jurisdiction and applicable law in matters of succession
• ECJ, Hünnebeck, C-479/14, judgment of 8 June 2016
• ROSE & PARTNER, overview of German inheritance tax treaties (Denmark, France, Greece, Sweden, Switzerland, USA)
• Forvis Mazars, Newsletter Steuern 4/2023, on BFH II R 27/20 of 24 May 2023 (DBA Sweden)