To qualify for tax exemption, it is necessary to move into the inherited family home without delay
Waiting too long to move into the inherited family home may render it impossible to claim tax exemption. That was the verdict of the Finanzgericht (FG) Düsseldorf – the Fiscal Court of Düsseldorf – in a ruling from March 10, 2021 (Az. 4 K 2245/19 Erb).
According to Section 13(1) No. 4 c) of the German Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG) the family home can be passed down tax-free if the testator has made personal use of it for their own residential purposes by the time of the accrual of the inheritance, or they have compelling reasons that prevent them from doing so and the party acquiring the property personally occupies it without delay. We at the commercial law firm MTR Rechtsanwälte note, however, that the living space must not exceed 200 square meters.
It is essential that the heir make use of the family home for their own residential purposes as soon as possible. The ruling of the Finanzgericht Düsseldorf clearly demonstrates that putting off the move for too long puts tax exemption at risk.
The heir in the case in question inherited the family home from her mother in July of 2016 and had intended to move in, but this did not happen until early 2018 because of extensive renovation work that needed to be carried out first.
And yet the renovations could probably have been completed sooner. The heir assigned the task of clearing out the house to a private individual who only had time to work on weekends, which meant the house was not cleared out until early 2017. The heir subsequently entered into discussions with tradesmen, but the assignment of the work was held up due to the already considerable workload of trade businesses. The new kitchen was ordered in August of 2017 and not fitted until December.
Since the period between the accrual of the inheritance and the occupation of the family home ultimately came to 18 months, it was held that the heir could not claim tax exemption. The Finanzgericht Düsseldorf ruled that a property cannot be said to have been occupied without delay where the relevant timeframe is 18 months.
The heir was aware of the substantial amount of renovation work to be done. The FG Düsseldorf held that she was at fault for not hiring a business to clear out the house. The court also found that she could have dealt with tradesmen and ordered a kitchen sooner.
When it comes to succession, it is important to be mindful of deadlines and tax allowances at all times. Lawyers with experience in the field of tax law can provide counsel.