What is included in the „Household effects“ for the purposes of the exemption on tangible property of Section 13(1)(1)(a) of the Inheritance Tax Act?
Time and again, in our day-to-day work, we see just how differently the term „household effects“ is understood – particularly with regard to a car – whether by the heirs themselves or by opposing solicitors or courts.
The background is as follows: Inheritance tax applies to acquisitions upon death and gifts made during the donor’s lifetime. Section 10(1) of the Inheritance Tax Act (ErbStG) bases the calculation of the taxable acquisition on the enrichment of the acquirer, provided that no tax exemption applies under Sections 5, 13, 13a, 13c, 16–18 of the Inheritance Tax Act.
Of great practical importance, and the subject of this article, is the Tax exemption under Section 13(1)(1) of the Inheritance Tax Act, which must be taken into account as a matter of course. Accordingly, the following remain tax-exempt
„a) Household goods, including linen and clothing, when purchased by persons in tax class I, provided that the total value does not exceed 41,000 euros,
(b) other movable tangible property not exempt under point 2, when acquired by persons in tax class I, provided that the total value does not exceed 12,000 euros,
(c) Household effects, including linen and clothing, and other movable tangible items not exempted under point 2, when acquired by persons in tax classes II and III, provided that the total value does not exceed 12,000 euros.
The exemption does not apply to items forming part of agricultural or forestry assets, real estate or business assets, nor to cash, securities, coins, precious metals, gemstones and pearls;“
It should be noted, as a general point, that Section 13(1)(1) of the Inheritance Tax Act (ErbStG) is a Tax-free allowance, not a tax-free threshold which would cease to apply once the allowance has been exceeded. Only the amount exceeding the allowance is subject to tax. The unused portion of the tax allowance cannot be transferred to other purchasers. It should be noted that the Tax exemption for household goods and other movable property is due not only to the heir but also to the legatee, even though the latter acquires only a contractual claim against the heir(s) for the transfer of the object of the legacy.
To the Household effects in accordance with section 13(1)(1)(a) of the Inheritance Tax Act (ErbStG) This includes all movable items intended for domestic use and thus for (family) life. Household effects can therefore only be items that do not serve a gainful employment purpose, but rather the management of everyday life outside of work and are not intended as an investment (see also Erle, ‘The Car as a Household Effect’, ZEV 2016, 240). This includes, for example, furniture, televisions, carpets, curtains, crockery, plants, garden furniture, clothes, books, cleaning and maintenance equipment for the home and garden, and items for entertainment and education such as televisions, video recorders, computers, games, pictures, books and musical instruments, etc. The basis for this is an objective assessment; subjective intended use is irrelevant. Neither the value nor the actual use is taken into account.
Personal effects, such as jewellery (provided it does not meet the requirements of section 13(1)(1), third sentence, of the Inheritance Tax Act) or items that can also be used outside the household, are likely to be regarded as household effects, as are works of art, provided they are suitable for use as furnishings. Works of serious artistic merit, on the other hand, do not constitute household effects and may therefore only qualify for tax relief under Section 13(1)(1)(b) of the Inheritance Tax Act (ErbStG) or under Section 13(1)(2) of the Inheritance Tax Act (ErbStG).
The following appears to be problematic: Classification of a passenger car. Does it fall under „household effects“ within the meaning of Section 13(1)(1)(a) of the Inheritance Tax Act (ErbStG) or under „other tangible objects’ within the meaning of Section 13(1)(1)(b) of the Inheritance Tax Act (ErbStG)? The differing views are based on the specific use of the vehicle:
According to the narrowest possible interpretation, a car is only considered a household asset if it was used primarily jointly by the spouses for private purposes and the running of the household (Federal Court of Justice, order of 15 January 1992 in Case XII ZB 148/91; Federal Court of Justice (BGH), judgement of 24 October 1990, ref.: XII ZR 101/89; Higher Regional Court of Oldenburg, FamRZ 1997, 942).
According to another view, a car may, in exceptional cases, be regarded as a household item if, on the one hand, it is used predominantly for family journeys, shopping, etc., but, on the other hand, is also used for work purposes (Higher Regional Court of Koblenz, FamRB 2006, 102; Higher Regional Court of Cologne, FamRZ 2002, 322; Weber-Monecke, op. cit., para. 6 on Section 1361a of the German Civil Code (BGB); Neumann, in: Bamberger/Roth, as at 1 November 2014, para. 3 on Section 1361a of the German Civil Code (BGB); Higher Regional Court of Naumburg, FamRZ 2004, 889; Higher Regional Court of Zweibrücken, FamRZ 2005, 902).
According to another view, a car is to be regarded as a household item if, in addition to being used for work, it is also used for family purposes; if it is the family’s only vehicle, it is generally assumed to be household property (Higher Regional Court of Düsseldorf, FamRZ 2007, 1325; KG, FamRZ 2003, 1927; Order of the Higher Regional Court of Frankfurt dated 25 February 2015, Ref.: 2 UF 356/14).
The latter view should be followed. It seems appropriate to refer to the civil law concept of „household item“ within the meaning of Section 1568b of the German Civil Code (BGB). In 2009, this provision replaced, in particular, Section 8 of the Household Effects Regulation (HausratsVO), which still referred to „household effects“. Household items are therefore items which, by their very nature, serve not only the purpose of running a household but also that of general daily life. Accordingly, a car which is not used exclusively for work and which is the family’s only vehicle is, in any event, household goods.
A car used predominantly for business purposes is therefore likely to be classified as „other movable tangible property“ within the meaning of Section 13(1)(1)(b) of the Inheritance Tax Act (ErbStG), which is generally disadvantageous due to the lower allowance for taxpayers in tax class I.
In particular, the question of whether a car can be classified as household effects is often an issue when interpreting a will in which the testator has bequeathed „all household effects“ to a specific person. This frequently leads to disputes. Here, too, the points mentioned above can assist with the classification. However, when interpreting a will, one must always examine the testator’s underlying intention, and one must therefore refrain from providing a universally applicable answer.
Do you have any questions regarding household contents and tax obligations or exemptions in the event of acquisition by way of gift or inheritance, or regarding the interpretation of a will? We would be happy to advise you on both inheritance law and inheritance and gift tax law.