Private Clients

The German Inheritance Tax Act provides for various forms of preferential tax treatment with regard to assets located in Germany, the rest of the EU or the EEA.

– tax exemptions for corporate assets
– tax exemption for the family home
– tax exemption for residential properties that are let out (10% deduction)
– tax exemption for cultural objects

These tax exemptions are also applicable during the transition period, as the UK is to be treated as a Member State. 

When the transition period has ended, preferential tax treatment will no longer be granted when these assets are transferred. 

Structures featuring a holding company are still conceivable for corporate assets. These can still be carried out after the end of the transition period. 

The preferential transfer of corporate assets is dependent on observance of a five or seven-year holding period. Some of the relevant regulations also have EU or EEA relevance. Thus, a certain aggregate wage must be observed (aggregate wage regulation). In principle, only wages from subsidiaries or business units in the EU/EEA are added to the aggregate wage – before Brexit, this therefore also included wages from UK companies.

During the transition period, wages from UK companies/business units could also be taken into account.

Tax exemption for cultural objects is dependent on these objects remaining (for a restricted period) in the EU.

It is assumed that these objects will remain in the EU during the transition period.
 

After the end of the transition period the following will apply  on the basis of the German Brexit Tax Act: 

With respect to gifts and inheritances for which tax was incurred before the withdrawal or the end of the transition period, the UK is still considered to be a member of the EU.

– Aggregate wages from companies in the UK may still be taken into account when reviewing the aggregate wage regulation, provided that the aggregate wage period commenced before the transition period ended.

– It is assumed that cultural objects in this case will remain in the EU. 

As tax exemption is no longer possible for gifts or inheritances after the transition period, it is no longer necessary to check whether the holding period has been observed and transition regulations on holding requirements are not required.

There is no subsequent period for tax exemption for transfer of the family home or residential properties that are let out so there are no special transition regulations. 

The exit of a domestic shareholder with a minimum 1% stake in a corporation results in disclosure and taxation of the hidden reserves associated with the shareholding (corresponding to a sale).

– Move to an EU/EEA state: The tax can be deferred without time restriction, interest or providing collateral.

– Exit to take up residence in a non-EU/EEA state: In specific cases and upon request, the tax can be deferred for a maximum of five years if collateral is provided.

During the transition period, exit to take up residence in the UK will be treated in the same way as exit to take up residence in another EU Member State. 

Any deferral granted on exit to an EU/EEA State must be revoked if residence in the EU/EEA State comes to an end "through abandonment" of domicile.
 

In the event of an exit after the transition period, deferral of the exit tax without interest and with no time restriction will no longer be possible.

Therefore, the tax must be paid immediately unless, upon request, payment by instalment for a maximum period of five years is granted as otherwise immediate collection of the tax would lead to substantial hardship.

Note: Legislative change planned through the German ATAD Implementation Act (ATADUmsG): In particular, new provisions governing the possibility of deferral and equal treatment of exit within the EU and exit to third countries.

The German Act on Brexit Tax Support made it clear that withdrawal alone does not lead to revocation of the deferral if exit to take up residence took place before withdrawal or during the transition period.