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Bequeathing a family home – The tax emption ceases to apply if ownership is relinquished within a period of ten years

Spouses and life partners are able to bequeath their owner-occupied properties to surviving partners free of inheritance tax provided that the latter decide, without undue delay, that the intended use of the properties will be for their own residential purposes. To this end, the surviving partner has to have the intention to use the property him/herself and actually move into it. However, the inheritance tax exemption would cease to apply retroactively if, within a period of ten years following acquisition, the ownership of the family home was transferred to a third party.

According to a new Federal Fiscal Court (Bundesfinanzhof, BFH) ruling, this would apply even if own use for residential purposes were to continue on the basis of a lifelong usufruct. In the case in question, a woman had inherited, from her husband, a single-family home, which they had jointly occupied, and had initially remained living in it. One-and-a-half years after the accrual of the inheritance, she gifted the house to her daughter. Even though she reserved a lifelong usufruct for herself and carried on living in the house the local tax office retroactively revoked the inheritance tax exemption because the claimant had gifted the family home.

The BFH, in it ruling from 11.7.2019 (case reference: II R 38/16, see confirmed that the tax concession had ceased to apply retroactively and then pointed out that, through the tax exemption, the legislator had wanted to protect family living space and promote the growth of home ownership by families. That is why the exemption could only be claimed by those surviving spouses or life partners who have become owners of a property and live in it themselves.

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