Reduction of income tax from the sale of assets of the estate by offsetting payed inheritance tax, 35b EStG
In the case of inheritance, the estate is subject to inheritance tax. Here, the inheritance tax value of the estate is evaluated according to the Valuation Act and then taxed with inheritance tax.
Subsequent sales of assets from this inherited estate may also be subject to income tax at the level of the heir.
This may lead to an overlapping taxation with inheritance tax and income tax – thus resulting in an economic double taxation.
The legislature has recognized this and created a regulation with § 35b EStG, according to which a pro rata reduction of the income tax from such a sale occurs in order to at least partially compensate for the double burden. However, the legislator has only regulated this for cases in which a sale takes place within 5 years of the inheritance.
The fact that this reduction does not apply to later sales, even if the heir cannot do anything about a sale that is only possible at a later date – for example due to lengthy inheritance disputes – has now been expressly decided by the Hamburg Tax Court in a judgment dated August 23, 2021.
In the case of inheritance, this means that the heir should decide as soon as possible whether he wants to keep or sell inherited assets, insofar as they trigger income tax in the event of a sale.
This applies in particular to
- private non-owner-occupied property that was acquired by the testator less than 10 years ago
- Participations in corporations that amount to at least 1%
- Taxable business assets
If the heir wishes to sell assets that are subject to income tax on a sale, he should consider a sale within a period of 5 years from the date of inheritance in order to achieve a pro rata reduction on income tax for such a transaction.
In the case of assets that are only subject to income tax if they are sold within the so-called speculation period, alternative considerations must also be made, if an entirely income tax-free sale after an expired speculation period could be a viable option.
In the case of inherited business assets, which were transferred with inheritance tax privileges in accordance with Section 13a ErbStG. the disadvantageous inheritance tax consequences arising from a breach of the retention period in the event of a premature sale must also be taken into account. Here, too, it must be considered to what extent waiting with the sale until the end of an inheritance tax retention period can be an alternative. If the assets are to be sold promptly, the 5-year period from the inheritance should be observed to ensure an income tax reduction from the sale.
As a Munich tax office, Alexia Huber & Partner Steuerberatungsgesellschaft mbB advises clients on questions relating to donations, estate planning and inheritance. Based on the considerations of our clients, our tax consultants create holistic concepts for their tax-optimized implementation.