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27. May 2022 | Family Home Inheritance & Gift Tax Free Transfer: Until then the inheritance must move at the latest! (this contribution)

Children can purchase a property from their parents who have lived in it tax-free by way of gift (by use of allowances) or inheritance. A possible tax exemption is regulated in § 13 (1) no. 4c ErbStG. There is no inheritance tax for the transfer. For this, however, the children must quickly move into the transferred property themselves after the inheritance. We explain until when you as an heir must have moved into the family home, which is called by law, and what other problems can occur in connection with the family home.

First of all, it is necessary to clarify what the tax exemption for the family home according to § 13 (1) no. 4c sentence 1 ErbStG is all about. In § 13 paragraph ErbStG, the numbers 4a to 4c represent three different tax exemption situations for the family home. A distinction is made between donation among the living and the acquisition of property upon death, and there between transfer to spouses and children. However, the family home can be defined the same in all cases.

Therefore, there is a family home, as far as a built-up property and there an apartment or the house itself is used for its own residential purposes. Whether a use for own residential purposes is determined by the actual use. In the apartment must therefore be the center of family life. However, this does not exist if an apartment is only used as a holiday apartment or as a weekend apartment. Nevertheless, the tax exemption may apply under certain circumstances if the family home has been transferred to a GbR and the shares in the GbR are transferred. In a partnership, the so-called principle of separation between the company and the shareholders applies. Therefore, the donor provides the donation not to the company but to the shareholders.

1.2. Breakdown by use

The family home is divided according to functional purposes or purposes of use. Therefore, only the part of the property used for own residential purposes is exempted. Consequently, for example, use by external rental or for commercial or professional purposes for the tax exemption of the area used for residential purposes is harmless. Areas are only divided according to their use. Furthermore, it should be noted that the tax exemption comes next to the allowance.

§ 13 (1) no. 4a ErbStG exempts the gift of the family home from the gift tax. Different grants are considered tax-free. This includes, above all, the transfer of co-ownership or sole ownership. But also the purchase of the house with funds of one spouse is tax-free, if the buying spouse grants the other the co-ownership. It is also possible to repay a loan solely for the purchase of the family home with the funds of the addressing spouse. Furthermore, subsequent production costs or maintenance costs are also covered by the tax exemption if there is a connection with the family home.

It is central that there is no re-taxation in the case of a donation, as in § 13 (1) number 4b or 4c ErbStG and it does not depend on the use of the legal successor as a family home. However, the tax exemption is limited to a family home of 200 sqm. The other square meters are therefore regularly subject to the gift tax. On the other hand, there is no value limit and no adequacy check takes place.

1.4 Acquire family home due to death

The exemption provisions of § 13 (1) no. 4b and no. 4c govern the acquisition of property upon death. The deceased must have used the family home for his own residential purposes until the succession or have been prevented from self-use for compelling reasons. The latter comes into consideration, for example, if a self-use was not possible as a result of need for care.

However, unlike gifts and the acquisition of death by the children, there is no living space limitation. In addition, the inheriting spouse or the inheriting child must use the apartment for their own residential purposes immediately after the succession. However, it is not harmful if the heritage is prevented from self-use for objectively compelling reasons. In the case of children, for example, one reason may be that they are not able to run a household independently due to their minority age. Spouses will usually already live in the family home and therefore have moved there immediately. However, this appears problematic in the children. Then we clarify when the heir must have moved into the family home.

In order for the children or spouses to be able to avail themselves of the tax exemption provided for in § 13 (1) no. 4c or no. 4b ErbStG for the family home, they must receive it quickly after the succession. However, the law does not specify a rigid deadline here, but stipulates that the children must move into the property immediately. Immediately can be defined as without guilty hesitation. As a rule, a period of six months after the succession applies. However, this period may be extended in individual cases.

For example, moving in may be delayed due to renovation work. However, this is not attributable to the hereditary purchaser if he has commissioned the work immediately, but the craftsmen cannot execute it in time for reasons for which the purchaser is not responsible. One should think here, for example, of bad weather conditions or too many orders on the part of the craftsmen. In particular, the heir is not obliged to take specific, accelerating and possibly more costly measures to renovate or repair damage in order to meet the six-month deadline.

If the property is evacuated or cleared in a timely manner, this speaks for an immediate provision for self-use. However, this has only indicative effects. Accordingly, the delayed clearing, which is based on the fact that defects have been eliminated before, does not contradict the immediate self-use. However, this is different if the delayed removal alone justifies a delayed movement. It is important to realize that the greater the time interval between the acquisition and self-use, the more difficult it is to prove self-use to the tax office.

If the family home was rented because the decedent was prevented from self-use, the heir must make sure to claim self-use. But this is also granted within a reasonable time.

3. Until then, the heir must inhabit the family home – Post-taxation situation

It is important to note that the family home must actually be used for residential purposes at least ten years after the acquisition. Otherwise, the acquisition will be post-taxed. The retroactive taxation is only waived if the inheritance is prevented from self-use for own residential purposes for compelling reasons. A further transmission with reservation of use is also harmful and triggers the re-taxation status. The tax assessment is then retroactively amended in accordance with § 175 (1) no. 2 AO. The tax exemption will then be abolished in its entirety and not only over a certain period of time.

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4th Conclusion: You have to pay attention to this at the family home

The gift of a family home usually does not cause any major problems. In this case, no self-use is envisaged and, as a result, there is no post-control status. Admittedly, in the case of the acquisition of death by spouses, a subsequent self-use is provided. As a rule, however, the spouses probably live together in the family home, so that the own use should usually be present.

The only problem is the acquisition of death by children. Often, children who already live elsewhere and have set up their family life will not be able to continue using their parents’ family home. In addition, the transfer of the family home is often only possible to a child. With several children, the others get a compensation. If this is unfavourable property, it is charged with inheritance tax if the allowances are exceeded. All this must be taken into account in the context of succession planning. We are happy to advise you on tax-optimized planning of your succession.