Info · Non-residents · Law

Inheritance tax Germany: which allowance applies to non-residents' property?

Q: Does this also apply to lifetime gifts?

Yes. The ErbStG is an inheritance and gift tax act; limited liability under §2(1) no. 3 applies to both. The ten-year view in §16(2) ErbStG expressly includes earlier acquisitions from the same person — at their earlier value.

Inheritance tax in Germany applies to property here even when neither party lives in the country: allowances under limited tax liability are far lower than for residents, and that changes what a German property is worth to your heirs. Today §16(2) ErbStG grants the same allowance as for a resident, pro-rated.

What applies today The financing lever

Which allowance applies to non-residents for inheritance tax in Germany?

Inheritance tax in Germany: non-residents now get the full personal allowance, reduced pro rata. Since 2017, limited-liability taxpayers are entitled to €400,000 for children and €500,000 for spouses, reduced in proportion to the share of assets taxable in Germany relative to the total estate. The old €2,000 allowance no longer applies.

Why is half the internet wrong here?

Because many sources still quote the allowance of 2,000 euros, which was the law until 2017. Today §16(2) ErbStG grants the same allowance as for a resident, but pro-rated.

The €2,000 allowance is history — today it is pro-rated: That was the law until 2017. Today §16(2) ErbStG grants the same allowance as for a resident, but pro-rated in proportion to the assets not subject to limited tax liability. Which German banks finance non-residents?.
Am I a non-resident for tax immediately after moving away? For inheritance tax, usually not. Under §2(1) no. 1(b) ErbStG, German citizens still count as residents for five years after moving away — with unlimited liability on worldwide assets. Which German banks finance non-residents?.
A loan tied to the German property can reduce the tax: Under §10(6) sentence 2 ErbStG, debts are deductible under limited liability only where they relate to the German assets. A loan secured by a mortgage on the German property and used to acquire it can qualify.

Which inheritance tax allowance applies in Germany when you own property there but live abroad? Where both heir and deceased live abroad, inheritance tax in Germany applies under limited tax liability — and the allowance is now the full personal one, reduced pro rata.

The often-quoted mini-allowance of €2,000 is outdated.

Since 2017, limited-liability taxpayers are also entitled to the full personal allowance — €400,000 for children, €500,000 for spouses.

It is reduced in proportion to the share of assets taxable in Germany relative to the total estate.

Two traps remain: estate liabilities are only proportionally deductible (§10(6) ErbStG; narrowed by the European Court of Justice in 2023, C-670/21), and moving away within the five years before death can keep unlimited German tax liability in place.

This is a tax-law question — we provide the financing side; the binding assessment is your tax adviser's or a specialist lawyer's. Not legal or tax advice.

Until 2017, §16(2) of the German Inheritance and Gift Tax Act (ErbStG) contained a sentence that was easy to remember and easy to quote: under limited tax liability, the normal allowance is replaced by an allowance of 2,000 euros.

The European Court of Justice struck this rule down several times — it breached the free movement of capital. The legislator deleted it with the Tax Avoidance Prevention Act; the new version applies to acquisitions for which the tax arose after 24 June 2017.

And yet you still find the 2,000 euros to this day on advice sites, in forums and even in statute collections that never updated their text. This is not a marginal problem: anyone planning with that figure is planning on a legal position that has not existed for eight years — and arrives at a result that is either far too pessimistic or, depending on the constellation, dangerously optimistic.

Nothing here is tax advice. We are mortgage brokers (§34i GewO), not tax advisers. This text places the legal position in context so that you can ask the right questions — binding information comes from your tax adviser or the tax office. What we can assess, and do assess, is the role your financing plays in this.

The basis: limited tax liability

If neither the deceased or donor nor the recipient lives in Germany, limited inheritance and gift tax liability applies (§2(1) no. 3 ErbStG). What is then taxed is not worldwide wealth but only domestic assets within the meaning of §121 of the Valuation Act (BewG). That list is exhaustive — and the practically most important item in it is domestic real property. Your German property is therefore the point of connection.

What is notable is what does not belong to it: a credit balance at a German bank is — in itself — not a domestic asset within the meaning of this provision. The property is. That explains why wealth that „feels the same“ in Germany is treated very differently for tax.

The five-year trap for Germans abroad: A point that is regularly overlooked: German nationals who have been permanently abroad for no more than five years still count as residents (§2(1) no. 1 lit. b ErbStG) — with the consequence of unlimited tax liability on worldwide wealth.

Anyone who moved to Dubai in 2023 is, from the perspective of German inheritance tax law, still a resident in 2026. For US connections, a ten-year period can even apply via the supplementary protocol to the Germany–US estate tax treaty.

How is the pro-rata allowance calculated?

§16(2) ErbStG in its current form says: the allowance under subsection 1 — the same 500,000 € for spouses, 400,000 € for children, 200,000 € for grandchildren, 100,000 € for the other persons in tax class I, 20,000 € for tax classes II and III — is reduced by a part-amount under limited tax liability.

That part-amount corresponds to the ratio of the assets not subject to limited tax liability to the total assets acquired from the same person within ten years.

In plain terms: you receive the full allowance pro rata — in the proportion in which the German assets stand within the total acquisition. Anyone who leaves only a German property and nothing else is in a very good position. Anyone who also transfers substantial foreign assets sees the allowance shrink.

Allowance — Until 2017 (still read everywhere): flat 2,000 €; Today (§16(2) ErbStG): the same as under unlimited liability — reduced pro rata. Reference figure — Until 2017 (still read everywhere): none; Today (§16(2) ErbStG): share of foreign assets in the total acquisition, ten-year view. Right to elect — Until 2017 (still read everywhere): §2(3) ErbStG (option for unlimited liability); Today (§16(2) ErbStG): abolished — deleted in the same act.

Legal position: ErbStG as in force, checked on 14 July 2026 (gesetze-im-internet.de). Whether the pro-rata reduction, too, is compatible with the free movement of capital is disputed and the subject of further proceedings — the last word has not been spoken here.

The point no tax guide mentions: your financing helps decide

Up to here it is tax law. Now comes the part that concerns us — and that appears in none of the guides telling you about the 2,000 euros.

Under §10(6) sentence 2 ErbStG, under limited tax liability debts and encumbrances are deductible only in so far as they are economically connected with the domestic assets. This is no formality. It is the difference between „the property is taxed at its full value“ and „what is taxed is what remains after the loan is deducted“.

A loan that is secured by a land charge on the German property and served the acquisition or renovation of precisely that property has this economic connection. A loan someone took out abroad and „somehow also used“ may not — even where the money demonstrably flowed into the same property. The connection must follow from the substance, not from the intention.

This is why, where there is a foreign element, we do not only ask whether a financing can be arranged, but how it is structured. The answer to the second question can be worth more decades later than a tenth of a percent on the rate.

Three further points non-residents regularly overlook

Non-residents often miss the reduced value for let residential property under §13d ErbStG, the duty to notify the inheritance tax office under §30 ErbStG and the few inheritance tax treaties, which leaves crediting under §21 ErbStG.

§13d ErbStG applies to you too (Let out?): Property let for residential purposes is assessed at a reduced value — and this relief is available to persons with limited liability as well. In 2023 the ECJ (C-670/21) even clarified that it must not fail because the property lies in a third country. Anyone who does not claim it gives it away.
Duty to notify under §30 ErbStG (Deadline): The acquisition must be notified to the inheritance tax office — even where tax only possibly arises. With a foreign element this is readily overlooked, on the assumption that „the German tax office will not find out anyway“. It does find out.
Barely any treaties on inheritance tax (Twice?): Unlike income tax, there are very few double-taxation treaties in the field of inheritance tax. That leaves §21 ErbStG: crediting foreign tax — under narrow conditions. Double burden is no theoretical risk here.

Why this touches the structure of the financing

Where does the security sit? A German land charge on the German property is the clearest connection imaginable.
What was it drawn down for? The purchase and renovation of this property — provable, with evidence of use.
The convenient route can be expensive. Anyone who finances the German purchase with a loan in the country of residence, because it was quicker there, may forfeit the deduction of debt in Germany. No one notices — until the inheritance arises.
Refinancing is a moment too. Anyone who shifts an existing German financing abroad may change more than just the interest rate.

A model-type classification, not tax advice and not a financing commitment. Whether and to what extent a deduction of debt is recognised is decided by the tax office in the individual case.

Frequently asked questions

Is it true that as a non-resident I only have a €2,000 allowance?

No. That was the legal position until 2017. Today §16(2) ErbStG applies: you receive the same allowance as a person with unlimited liability, but reduced pro rata in the ratio of the assets not subject to limited tax liability to the total acquisition, viewed over a ten-year period. The 2,000 € only keeps circulating because many pages never updated their text.

I emigrated three years ago. Am I already a non-resident?

For inheritance tax, very probably not. Under §2(1) no. 1 lit. b ErbStG, German nationals still count as residents for five years after departure — with unlimited liability on worldwide wealth. The period runs from permanent residence abroad, not from de-registration.

Can I lower the tax by financing the property rather than buying it in cash?

That is the right question — the answer hangs on the economic connection. Under §10(6) sentence 2 ErbStG, under limited liability debts are deductible only in so far as they are connected with the domestic assets.

A loan secured by a land charge on the German property, which served the acquisition of that property, meets this most clearly. Whether it holds in the individual case belongs before the signature, not after — and in the hands of your tax adviser. We structure the financing so that the question can be answered cleanly at all.

Does this also apply to lifetime gifts?

Yes. The ErbStG is an inheritance and gift tax act; limited liability under §2(1) no. 3 applies to both. The ten-year view in §16(2) ErbStG expressly includes earlier acquisitions from the same person — at their earlier value.

Is the pro-rata reduction even compatible with EU law?

That is open. The predecessor rule (a flat 2,000 €) was rejected by the ECJ for breaching the free movement of capital. Whether today's pro-rata reduction survives is doubted in the literature and is the subject of further proceedings. Plan with the legal position as it stands — but expect it to move again.

Your property is in Germany. You are not.

Then the question of how the financing is structured belongs at the start — not at the end. We look at your case before you sign.

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Editorially responsible: Olga Nikushkina — owner, §34i GewO (German mortgage brokerage), adviser register D-W-132-ZUCB-95. Specialised in German property financing with an international dimension: non-residents, foreign-currency income, cross-border workers, expats. Siegfried Perini is entered in the German intermediary register under this licence as a person directly involved in brokerage and advice (§ 11a GewO), active in real estate since 1992. Not legal or tax advice.

Last updated: 3 October 2026