German inheritance tax law — the basics, with practical examples
How German inheritance tax really works: three tax classes, the allowances that come off the top, the progressive rates, and what changes for spouses — with worked examples so you can watch the numbers move.
German inheritance tax law governs how assets passing by inheritance or gift are taxed. It is set out in the Inheritance and Gift Tax Act (ErbStG) and turns on three things above all: the relationship between the deceased and the heir, the value of what is inherited, and the deductions available — personal allowances and the flat-rate expense allowance.
Three classes, fixed by how close you are
Every heir falls into one of three tax classes. The class sets both the allowance and the rate.
- I
Tax class I
Spouses and registered partners, children and their descendants, stepchildren, and — for inheritances, not gifts — parents and grandparents. This group enjoys the highest allowances and the lowest rates.
- II
Tax class II
Siblings, nieces and nephews, parents-in-law, children-in-law and step-parents. Allowances here are far smaller and the rates higher.
- III
Tax class III
Everyone else: friends, distant acquaintances, unrelated business partners. The lowest allowances and the highest rates apply.
What comes off the top before any tax
These amounts are deducted from the inheritance before a single euro of tax is calculated (§ 16 ErbStG).
On top of these, every heir — regardless of relationship — can claim a flat-rate expense allowance of €10,300 (§ 10 (5) no. 3 ErbStG). It usually covers the funeral, grave care and the cost of opening the will. A higher amount can be proved, though this is uncommon.
- Spouses and registered partners
- €500,000
- Children (first-degree descendants)
- €400,000
- Grandchildren (where their parent has died)
- €200,000
- Parents and grandparents (inheritance, not gift)
- €100,000
- Siblings, nieces, nephews and all other persons
- €20,000
- Flat-rate expense allowance (every heir)
- €10,300
The more you inherit, the higher the rate
Tax rises progressively with the taxable amount — that is, the inheritance after allowances and the expense lump sum (§ 19 ErbStG).
- Tax class I7% – 30%
- Tax class II15% – 43%
- Tax class III30% – 50%
Spouses are treated more favourably than anyone else
As well as the €500,000 allowance, half of the estate can pass to the surviving spouse tax-free as a lump-sum equalization of accrued gains (§ 5 ErbStG) — provided the marriage was under the statutory regime of community of accrued gains (Zugewinngemeinschaft), which is the default in Germany. The effect is dramatic: it can cut a taxable estate in half before the allowance is even applied.
Because the equalization of accrued gains raises difficult legal questions — especially when foreign matrimonial property regimes are involved — it should always be checked with a qualified lawyer or tax advisor.
See the numbers move
Three cases, one for each tax class, showing how the calculation runs from inheritance to final tax.
Example 1 — Tax class I (spouses and children)
Inheritance: €20,000
- Allowance
- €500,000
- Expense allowance
- €10,300
- Taxable amount
- €0
- Inheritance tax
- €0
Inheritance: €1,000,000 (spouse)
- Allowance
- €500,000
- Expense allowance
- €10,300
- Equalization of gains (tax-free)
- €500,000
- Taxable amount after allowance and lump sums
- €0
- Inheritance tax
- €0
Example 2 — Tax class II (siblings, nieces, nephews)
Inheritance: €500,000
- Allowance
- €20,000
- Expense allowance
- €10,300
- Taxable amount
- €469,700
- 15% on €75,000
- €11,250
- 20% on €300,000
- €60,000
- 25% on €94,700
- €23,675
- Total tax
- €94,925
Example 3 — Tax class III (friends, distant acquaintances)
Inheritance: €5,000,000
- Allowance
- €20,000
- Expense allowance
- €10,300
- Taxable amount
- €4,969,700
- 30% on €75,000
- €22,500
- 30% on €300,000
- €90,000
- 30% on €600,000
- €180,000
- 50% on €3,994,700
- €1,997,350
- Total tax
- €2,289,850
Prepared with care — but check before you rely on it
Both the calculator and this text have been prepared with great care. Even so, errors cannot be ruled out — in preparing this material we found mistakes in other providers' text and calculators too. We are always grateful for feedback through the contact page.
The information and calculations here are for general guidance only. They are no substitute for individual advice from a qualified lawyer or tax consultant. In complex cases — calculating the equalization of accrued gains, or filing an inheritance tax return for heirs abroad — you should always consult an expert. Liability for the accuracy of the figures and calculations presented is expressly excluded.
The takeaway
German inheritance tax law gives close relatives — spouses and children above all — a real advantage through high allowances and the expense lump sum. For distant relatives and friends the burden is steep. With larger or cross-border estates, talking to an expert early is well worth it.
How the tax is assessed when you live abroad — the procedure step by stepWant to run your own numbers?
The calculator on our inheritance tax page applies exactly these rules — allowances, expense lump sum and progressive rates — to your figures in seconds.