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German inheritance tax law (IHT) with reference to Business Taxation

MAYUR PAWASKAR

Abstract
Inheritance tax1, which is leviable on the value of an estate on death, is generally perceived as an unfair tax, and is frequently cited by clients as a significant factor in their decision to relocate assets or fiscal residence. Yet the territorial scope of this tax is increasingly couched by taxing States in terms broad enough to counter most planning strategies, leading to severe consequences especially where the client's heirs remain residents of the taxing State.

The purpose of this paper is to consider the case against inheritance tax from a general standpoint, before specifically highlighting some potential pitfalls that can materialise in connection with Germany -based inheritance tax planning structures.

The tax is set up as a tax on a case of inheritance, so that it is connected to the actual passing of inheritance to each heir, legal inheritor, legatee or other recipient. Its connection point is not the deceased person's entire legacy of assets as a whole - as in the estate tax system used by other countries - but rather only the assets received by the relevant heir after all estate obligations have been deducted.