Tax tip: You inherit "half" a property? You should pay attention to this

Inheritances often involve the transfer of ownership shares of a property - for example, when the child inherits half of the parents' house as co-owner. But what can you do with half a house? And how is the value relevant for inheritance tax determined? 

The Münster Fiscal Court recently had to deal with this question. The plaintiff had inherited half of a property. Thereupon, the tax office determined an inheritance tax value of 270,000 euros for the entire property within the framework of the Valuation Act and assessed 50 percent for the plaintiff, i.e. 135,000 euros.

However, the taxpayer was not satisfied with this. He took advantage of the possibility to prove a lower market value according to section 198 of the Valuation Act and had the local appraisal committee draw up an expert opinion. This came to a total value of only 150,000 euros. This value was still accepted by the tax office. 

But the appraisal committee went even further: it did not use the arithmetical share of the market value, i.e. 50 percent of 150,000 euros, or 75,000 euros. Instead, it also took into account a discount of 20 per cent and valued the co-ownership share at a total of only 60,000 euros. The reason given: Co-ownership shares are associated with considerable risks, for example due to the limited power of disposal. On the basis of corresponding experience from compulsory auctions, the expert committee considered this discount to be justified. At this point, the tax office disagreed.

The heir appealed against the tax office's decision to the Münster Fiscal Court. In its ruling at the end of 2022 (Ref.: 3 K 1201/21 F.), the court came to the conclusion that the deduction of 20 percent was sufficiently justified. However, the appeal was allowed, as the Federal Fiscal Court has not yet ruled on this question. A final ruling is therefore still pending. 

Therefore, the recommendation is: Anyone who inherits or receives co-ownership shares as a gift should check a possible valuation discount and keep the corresponding notices open until the final decision of the Federal Fiscal Court.