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Inheritance and gift tax – Applicable tax class for an acquisition from the biological father

Inheritance tax class I may only be claimed for acquisitions from a legal parent. The Federal Fiscal Court (Bundesfinanzhof, BFH) decided this, on 5.12.2019 (case reference: II R 5/17) and, in this respect, excluded acquisitions from a biological parent.

The amount of inheritance and gift tax payable will depend on the tax class, among other things. In tax class I, children and stepchildren initially receive a tax-free amount of € 400,000 and, beyond that, tax is payable at a rate of only 7% on amounts up to € 75,000. In tax class III, the tax-free amount is just € 20,000 and the tax payable on the next € 75,000 is already at a rate of 30%.

In the case that reached the BFH, the legal action had been brought by a man from Hesse who was admittedly the biological father of a daughter but not her legal one. The legal father of a child is the man who was married to the child’s mother at the time of the child’s birth. The biological father had gifted his daughter an amount of € 30,000 and had agreed to bear the cost of the gift tax payable. He wanted to claim tax class I for this.

However, the BFH grouped him under the unfavourable tax class III. Tax class I could only be applied in relation to the legal father because for tax class grouping purposes the regulations under civil law on parentage and kinship are relevant. Accordingly, it is up to the legal father to pay maintenance. Moreover, the child is entitled to inherit and to a compulsory share only from the legal father. Therefore, in terms of inheritance and gift tax, financial concessions solely for the legal father are justified.

Please note: The BFH pointed out that if children with “two fathers” were able to receive gifts or inherit from both the biological as well as the legal father under tax class I then this would result in unjustified double concessions.

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