Inheritance is the one tax topic nobody wants to think about until they must, and for expats in Germany it carries an extra trap: the German system may reach far beyond German borders to tax assets back home. The good news is that for close family the tax-free allowances are genuinely generous, and a rolling 10-year rule lets careful families pass significant wealth without tax at all. The catch is residency, which can pull your worldwide estate into the German net. Understanding the allowances, the relationship classes, and the residency rule before a gift or inheritance happens is the difference between a tax-free transfer and an avoidable bill.
This guide covers German gift and inheritance tax for expats: that the two are taxed together, the allowances by relationship, the 10-year reset, and when your worldwide assets are caught. Plan before, not after.
Gifts and inheritances, taxed together
The first thing to understand: Germany taxes both inheritance and gifts, under the same law (Erbschaft- und Schenkungsteuer), with the same rates and allowances.
- Inheritances (transfers on death) and gifts (transfers during life) sit on a unified system
- This is partly to stop avoidance, you cannot dodge inheritance tax by simply gifting everything away before death, because gifts are taxed too
- Crucially, the tax is paid by the recipient, not the estate (more below)
So you cannot treat gifting and inheriting as separate worlds, German law deliberately ties them together so the same allowances and rates apply to both. A gift to your child today and a bequest to them on your death draw on the same tax framework. This sits alongside the income tax you file as a separate but related part of the German tax system, worth understanding as a whole (see also the freelancer tax basics for the wider picture).
The allowances are generous for close family
The reassuring part: the tax-free allowances depend on your relationship to the giver and are generous for close family.
The headline allowances:
- Spouses / registered partners: a very high allowance (around €500,000)
- Children: a high allowance (around €400,000 per child, per parent)
- Grandchildren: a substantial allowance (around €200,000)
- More distant relatives and unrelated people: the allowances fall sharply (down to around €20,000)
You only pay tax on the value above your allowance. So close-family transfers are often partly or fully tax-free, a child can inherit up to €400,000 from each parent without inheritance tax, a spouse up to €500,000. It is only the excess over the allowance that is taxed, and at rates that also depend on your relationship class (lower for close family, higher for distant).
So the system is deliberately kind to immediate family and harder on distant or unrelated recipients. A surviving spouse and children face high allowances and low rates; a friend or distant relative faces a small allowance and steeper rates. Know your allowance based on your relationship before assuming any transfer is taxable, for close family, much of it may not be.
The 10-year reset
Here is the rule that makes German gift planning powerful: the tax-free allowances reset every 10 years.
What this means:
- You can receive gifts up to your allowance from the same person every 10 years, tax-free
- So structured lifetime gifting can pass significant wealth tax-efficiently
- The 10-year window is rolling: gifts within any 10-year period are added together against the allowance
So a parent can gift a child up to €400,000 tax-free, wait 10 years, and gift another €400,000 tax-free, and so on, passing far more than a single allowance over time without tax. This is entirely legitimate and is the core of German estate planning: rather than leaving everything to be inherited at once (using one allowance), families spread gifts across 10-year windows to use multiple allowances.
The rolling nature matters: you cannot game it by making several gifts in a short span, all gifts from the same person in any 10-year period count together against the one allowance. But across genuine 10-year intervals, the allowances renew. So early, planned lifetime gifting is how German families transfer wealth most tax-efficiently, something worth considering long before death rather than leaving a large estate to be taxed in one go.
Residency and worldwide assets
The expat trap: whether your worldwide assets are caught depends on residency.
- If either the giver or the recipient is a German tax resident, German inheritance/gift tax generally applies to worldwide assets, not just German ones
- If neither party is a German resident, typically only German-situated assets (like German property) are caught
- Double-tax treaties can prevent the same assets being taxed twice
So residency matters greatly. If you are a German tax resident and inherit from a relative abroad, Germany may tax that foreign inheritance. If you gift to someone while you are German-resident, German gift tax can apply even to assets outside Germany. This is why tax residency is so consequential, it can pull your entire worldwide estate, not just your German assets, into the German tax net.
The practical implications:
- A German-resident expat inheriting from family back home should check whether German tax applies to that foreign inheritance, it often does
- German-situated assets (notably German property) are caught regardless of residency, so an inherited or gifted German flat is taxable even for non-residents
- Treaties between Germany and your home country may relieve double taxation, check whether one exists and how it allocates taxing rights
So before any significant gift or inheritance involving a German tax resident, establish whether worldwide or only German-situated assets are in scope, the answer can dramatically change the bill. For estates spanning two countries, professional advice is worth it; the interaction of German rules, your home rules, and any treaty is exactly where costly mistakes happen. This is also a key part of any financial exit planning when leaving Germany.
Who pays, and the bottom line
A final structural point that surprises people from estate-tax countries: in Germany, the recipient pays, not the estate.
- Unlike systems that tax the estate as a whole before distribution, Germany taxes each beneficiary on what they receive
- Each beneficiary applies their own allowance and tax class based on their relationship to the deceased
- So two heirs inheriting the same amount can owe different tax depending on how closely related they were
So the tax is personal to each recipient: a spouse and a distant cousin inheriting equal amounts pay very differently, because each uses their own (very different) allowance and rate class. This is why the relationship-based allowances matter so much, they apply per recipient, not to the estate overall.
The bottom line: Germany taxes gifts and inheritances together, paid by the recipient, with generous allowances for close family (spouses €500,000, children €400,000 each) that reset every 10 years, enabling tax-efficient lifetime gifting. The big risk for expats is residency, which can pull worldwide assets into scope. Know your allowance, use the 10-year rule, check the residency position, and for cross-border estates, get advice before the transfer happens.
What to do this week
- Identify your tax-free allowance based on your relationship to the giver (spouses ~€500,000, children ~€400,000 each, falling for distant relatives), since you only pay on value above it.
- If passing wealth to family, consider structured lifetime gifting to use the allowance that resets every 10 years, rather than leaving one large taxable estate.
- Check your residency position: if you or the giver is a German tax resident, German tax may apply to worldwide assets, so get advice for cross-border inheritances and use any double-tax treaty.
