Tax law can be tough. A taxpayer recently found this out: Her deceased husband had bequeathed her half ownership of the family home they lived in together. A short time later, the woman had to move out of the house - due to a mental illness that was triggered by the death of her partner.
For this reason, she was denied the tax-free transfer of the home - according to a ruling by the Münster Fiscal Court (judgement of 10 December 2020). This ruling was contradicted by the Federal Fiscal Court (ruling of 1 December 2021).
This is the prerequisite for basic tax exemption
In principle, inheritance of owner-occupied residential property to a spouse or partner is exempt from inheritance tax. This applies regardless of the size and value of the home.
However, a prerequisite for the tax exemption is that the surviving spouse or partner lives in the property for at least ten years after the inheritance. If the inheriting spouse sells all or part of the home within this period, lets it out, leaves it empty for longer or gives it to someone else free of charge, the tax exemption is cancelled retroactively in full.
However, there is one exception: if the inheriting spouse is prevented from using the property for their own residential purposes for compelling reasons. Objectively compelling reasons exist, for example, in the event of death or in the event of a need for care that no longer allows them to run their own household.
Jürgen Lindauer
Director, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
Depression as a compelling reason?
Was the woman's depression a compelling reason to move out of the family home? The tax court had to clarify this question - and answered in the negative, as the widow continued to run her own household elsewhere. According to the court's judgement, a compelling reason is only given if it is no longer possible to run one's own household at all.
The Federal Fiscal Court did not confirm this very narrow assessment in its ruling of 1 December 2021. According to the Federal Fiscal Court, the acquirer of a family home favoured by inheritance tax law is also prevented from using it for their own residential purposes for compelling reasons if self-use is objectively impossible or unreasonable for objective reasons.
Expediency considerations alone are not sufficient. However, health impairments may constitute compelling reasons if they make it unreasonable to expect the purchaser to maintain an independent household in the acquired family home or if there is a risk of significant impairment of his/her health if he/she continues to use the family home himself/herself.
