Those who inherit a property do not automatically have to pay taxes on it. Only when the value of the estate exceeds the personal tax-free allowance does the tax office demand inheritance tax – and the amount of this allowance depends solely on the degree of relationship to the deceased. Spouses can inherit 500,000 euros tax-free, children 400,000 euros. We explain which allowances apply in 2026, how the tax office determines the value of your property, and what tax rate you can expect.
When is inheritance tax due on an inherited property?
For tax purposes, the tax office treats an inherited property like any other asset: Its value counts as an acquisition upon death and is recorded together with cash, securities and other estate assets. You first deduct the estate liabilities from this total – that is, the deceased’s debts, outstanding loans secured against the property and funeral costs. What remains is the taxable acquisition.
The personal tax-free allowance is then applied to this amount. If the value of the inheritance is below it, no inheritance tax is due. If it exceeds the allowance, only the excess is taxed. Important: You must generally notify the tax office of the inheritance within three months (Section 30 ErbStG). For inherited real estate, this notification obligation always applies – even if a notarized will is available.
Allowances by degree of relationship: How much remains tax-free
The personal tax-free allowance under Section 16 ErbStG is the most important lever in inheritance tax. The closer your relationship to the deceased, the higher the allowance:
- Spouses and registered civil partners: 500,000 euros
- Children and stepchildren, as well as grandchildren whose parents have already died: 400,000 euros each
- Grandchildren (whose parents are still alive): 200,000 euros
- Parents and grandparents (for acquisitions upon death): 100,000 euros
- Siblings, nieces and nephews, children-in-law, parents-in-law, stepparents and divorced spouses (tax class II): 20,000 euros
- All other heirs, such as friends or unmarried partners (tax class III): 20,000 euros
These amounts have remained unchanged since 2009 and apply per person. If two children jointly inherit a house, they are therefore entitled toeach child the full tax-free allowance of 400,000 euros. Another point is crucial: The tax-free allowance is granted anew every ten years. All acquisitions from the same person within ten years – including earlier gifts – are aggregated (Section 14 ErbStG).
How the Tax Office Determines the Value of Your Property
Whether any tax is due at all is determined by the assessed property value. The tax office uses the so-called common value (market value) and, depending on the type of property, applies one of three methods under the Valuation Act (Section 182 BewG):
- Comparative value method: For condominiums and single- and two-family houses. Purchase prices of comparable properties in the area are used.
- Income approach: For rented residential properties and commercial properties. The basis is the rental income that can be generated.
- Cost approach: If no comparative value can be determined. The construction costs of the building plus the land value are taken into account.
Since January 1, 2023, the tax office has been calculating noticeably closer to the actual market value. The reason is the 2022 Annual Tax Act, which adapted the valuation rules to the current Property Valuation Ordinance – among other things, the asset value factor was increased from 0.5 to 1.5 to 0.8 to 1.8. The result is a tendency toward higher valuations and therefore tax becoming due more quickly.
If the official value is too high, you do not have to accept it: Under Section 198 BewG, you may prove a lower market value – for example, through a qualified expert valuation or through a timely sale in the ordinary course of business. The value substantiated in this way then replaces the amount estimated by the tax office.
Tax Classes and Tax Rates at a Glance
The degree of kinship determines not only the tax-free allowance but also the tax class (Section 15 ErbStG):
- Tax class I: Spouses and civil partners, children and stepchildren together with their descendants, as well as parents and grandparents in the case of inheritance.
- Tax class II: Siblings, nieces and nephews, stepparents and parents-in-law, children-in-law, and divorced spouses.
- Tax class III: all other heirs.
The taxable acquisition – that is, the Value after deducting the tax-free allowance – a progressive tax rate is applied (§ 19 ErbStG). The higher the amount and the more distant the relationship, the more you pay:
- up to 75,000 euros: 7% (Class I), 15% (Class II), 30% (Class III)
- up to 300,000 euros: 11%, 20%, 30%
- up to 600,000 euros: 15%, 25%, 30%
- up to 6,000,000 euros: 19%, 30%, 30%
- above that: 23 to 30% (Class I), 35 to 43% (Class II), 50% (Class III)
The decisive factor is always the entire taxable acquisition: it determines which value bracket you fall into and which percentage applies to the full amount.
Additional maintenance allowance for spouses and children
In addition to the personal tax-free allowance, § 17 ErbStG grants a special maintenance allowance. Surviving spouses and registered civil partners receive an additional 256,000 euros. Children receive it on a graduated basis according to age – from 52,000 euros up to the age of five to as little as 10,300 euros for those aged 20 to 27.
However, this allowance is reduced by the capital value of tax-free maintenance benefits, such as a widow’s or orphan’s pension. Anyone receiving such benefits should have it checked how much of the maintenance allowance actually remains.
A calculation example for an inherited house
A son inherits a rented apartment building from his father. The tax office determines a value of 700,000 euros using the income capitalization approach. Because it is a property rented for residential purposes, only 90% of the value is taken into account under § 13d ErbStG – that is, 630,000 euros.
The son deducts his tax-free allowance of 400,000 euros from this amount. This leaves a taxable acquisition of 230,000 euros. As a child, he falls into Tax Class I and the value bracket up to 300,000 euros, so his tax rate is 11%. The inheritance tax amounts to approximately 25,300 euros. If the house had been vacant rather than rented, the 10% reduction would not apply and the tax would be higher.
Advantages and disadvantages of transferring property during your lifetime
Because the tax-free allowance becomes available again every ten years, many owners consider transferring their property by gift during their lifetime. You should carefully weigh whether this is worthwhile:
- Advantage – multiple tax-free allowances: Those who transfer early can use the allowance again every ten years and thus transfer larger assets tax-free.
- Advantage – appreciation outsourced: After the gift, future increases in the property's value are no longer included in the later estate.
- Advantage – protection possible: By having a registered usufruct or right of residence, you retain a right of use while also reducing the taxable value of the gift.
- Disadvantage – loss of control: After the transfer, the property belongs to the recipient; reversal is only possible through contractually agreed rights of revocation.
- Disadvantage – no family-home exemption for children: The full tax exemption for the owner-occupied family home applies to children only in the event of inheritance, not in the case of a gift.
Whether gifting or inheriting is more advantageous depends on the individual case. Consulting a tax adviser or specialist lawyer for inheritance law is a worthwhile investment here.
FAQ on inheritance tax for real estate
Do I have to pay tax on my parents' owner-occupied property?
Possibly not. Section 13 of the Inheritance and Gift Tax Act (ErbStG) provides a separate tax exemption for the so-called family home: If, as a child, you move in yourself immediately and occupy the property for at least ten years, it remains tax-free regardless of its value – but only up to a living area of 200 square metres. For spouses, the exemption even applies without a floor-area limit. This special rule is a topic in its own right with further requirements.
How is a rented property taxed?
The tax office values rented residential properties using the income approach. In addition, plots of land rented for residential purposes are assessed at only 90 percent of their value, meaning a valuation discount of 10 percent applies. The regular allowance based on the degree of kinship is then added on top.
What happens if I cannot pay the inheritance tax immediately?
For residential properties, Section 28 of the Inheritance and Gift Tax Act (ErbStG) provides for deferral of up to ten years. This may be considered if you could raise the tax only by selling the property. In the case of an acquisition upon death, this deferral is interest-free.
Does the later sale of an inherited property count toward inheritance tax?
No, these are two separate matters. Inheritance tax is incurred once when the inheritance is received. If you later sell the property at a profit, a the separate speculative tax under the Income Tax Act may apply – whereby the testator’s ownership period is credited toward the ten-year period. That is a separate topic.
Do the tax-free allowances apply only once?
No. The tax-free allowance is granted anew every ten years. However, acquisitions from the same person within a ten-year period – inheritance and previous gifts – are added together, meaning the allowance counts only once within this period.
Conclusion: The degree of kinship is decisive
How much remains tax-free when inheriting a property depends primarily on the tax-free allowance for your degree of kinship – 500,000 euros for spouses, 400,000 euros for children, and significantly less for more distant heirs. Equally important is the value determined by the tax office, which has been more closely aligned with the market since 2023 and is therefore often higher; obtaining a counter-expert opinion may be worthwhile. The tax-free family home and taxation upon a later sale follow their own rules. Anyone who plans early should consider a transfer during their lifetime and keep allowances, deadlines and valuation in mind – preferably with expert advice for larger estates.