Inherit, sell, pay no tax

Good news for communities of heirs: following a judgement by the Federal Fiscal Court, income tax no longer has to be paid on the sale of inherited shares. If it is agreed within a community of heirs that one of the heirs will buy out all the other shares and then sell the property as a whole, the tax office will not contact you with a tax claim.

This change in case law not only simplifies the sale of an inherited property. The path to an amicable agreement on what to do with the joint inheritance will also no longer be quite so rocky.

Disagreements and, in the worst case, disputes often make it difficult to dissolve a community of heirs. The new law from Germany’s highest tax court will at least help those who want to sell the property.

How did the change in case law come about?

The lawsuit was brought by a man who had inherited a woman’s property together with her children. The community of heirs of the three persons was dissolved with the result that the man took over the entire property and ultimately sold it. As he had bought part of the property from the children, the tax office demanded income tax on these shares, as is usual in such cases. This is because, in accordance with Section 23 (1) sentence 1 no. 1 of the Income Tax Act (EStG), this was considered a private sale transaction.

No classic property purchase, no classic taxes

In its ruling of 26 September 2023, the Federal Fiscal Court ruled that the acquisition of the children’s shares does not constitute a classic property purchase and income tax is therefore not applicable. The background to the change in case law is that the previous taxation was conditional on the assets sold, in this case property, having been acquired beforehand. This is not the case when focussing on the purchase of inheritance shares from a community of heirs.

Have you inherited a property and are unsure what to do with it? Do not hesitate to contact us. We know all about property inheritance and will be happy to advise you.

Notes

For reasons of better readability, the generic masculine is used in this text. Female and other gender identities are explicitly included where this is necessary for the statement.

Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific individual case.

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