You have inherited an art collection and would like to know what inheritance tax you will have to pay? The answer is complex – but there are also positive aspects. German tax law provides significant tax breaks if certain conditions are met. According to Section 13 Paragraph 1 Number 2 of the Inheritance Tax Act (ErbStG), the tax burden can be reduced by up to 60 percent or even completely avoided. However, the requirements are strict. This article shows how you, as an heir or collector, can make the most of these advantages and avoid typical mistakes.
The following provides an overview of the relevant provisions of Section 13 of the Inheritance Tax Act.
The inheritance tax law distinguishes between two levels of tax relief for art collections and comparable cultural assets:
- 60 percent exemption: The tax is significantly reduced if the artworks are made accessible to the public.
- 100 percent exemption: A complete tax exemption is possible if additional requirements are met, such as long-standing family ownership or inclusion in the register of nationally valuable cultural assets.
Which option applies depends largely on how long the works have been in the family’s possession and how they are used after inheritance.
The 60 percent exemption applies if the following three conditions are met:
Public interest in preservation: The works of art must be considered worthy of protection due to their significance for art, history, or science. This can be the case with individual important works as well as with extensive collections.
Cost surplus: The ongoing costs for maintenance and upkeep (e.g., insurance, restoration, storage, climate control and security) must regularly be higher than the income generated. The collection must therefore not be profit-oriented.
Public accessibility: The works must be accessible to a reasonable extent for research and education, for example through exhibitions, loans or visits by appointment.
These requirements must be met cumulatively. If even one condition is missing, the tax benefit is forfeited. On the positive side, public accessibility does not require a permanent exhibition in the museum. Private storage is also possible, as long as interested persons can gain access.
The 100 percent exemption is achievable if at least one of the following conditions is also met:
- 20-year rule: The artworks have been in the family’s possession for at least 20 years. Each individual work is decisive in this regard. A picture that was acquired 25 years ago meets the requirement, but a recently purchased work does not.
- Registration in the register of nationally valuable cultural assets: The collection has been officially registered. This requires a specific procedure and is rather rare.
- Obligation to protect historical monuments: The purchaser declares to a competent authority or institution that the works will be subject to the requirements of monument preservation. This obligation may also be limited in time.
In practice, the 20-year rule plays a central role. Long-standing family ownership can therefore lead to complete tax exemption.
Public accessibility: What requirements apply?
An important ruling by the Federal Fiscal Court (BFH) of May 12, 2016 (Case No. II R 56/14) has clarified what is meant by “public accessibility”. According to this, a permanent loan to a museum is sufficient to fulfill the requirement. Such a loan agreement can also be concluded after the inheritance has been received.
The “willingness to preserve monuments” must arise from objective circumstances, such as agreements with museums or written declarations to authorities.
In practice, the following options are possible:
– Permanent loan to a museum or public institution
– Regular loans for exhibitions
– Private storage with viewing option upon request (verifiably documented)
– Presentation in publicly accessible spaces or exhibitions
It is crucial that the public has access to the artworks under appropriate conditions.
Those who use the collection exclusively for private purposes and do not make it accessible cannot claim a tax benefit. Tax advantages are only available if the works serve at least part of the public, research or education.
Attention: The 10-year period
An important point is the so-called 10-year waiting period. If the art collection is sold or disposed of within ten years of its acquisition, the tax exemption is retroactively revoked. The inheritance tax can then be assessed retroactively – possibly years later.
This period begins with the acquisition by the heir. The same applies if the conditions for public accessibility are no longer met, for example by the termination of a loan or restrictions on visits.
Planning options in inheritance matters – practical tips
Anyone who inherits or wants to bequeath an art collection should plan early. The following measures are advisable:
- Design your will strategically: Instead of distributing the collection among several heirs, a clear allocation to one person or institution can avoid conflicts. Donations to museums or bequests can also be beneficial.
- Early coordination with institutions: Cooperation with museums or foundations – for example through loan agreements – can be prepared during one’s lifetime.
- Dokumentation der Kosten: Belege über laufende Kosten sind wichtig, um die Voraussetzungen für die Steuerbefreiung nachzuweisen.
- Proof of family ownership: Document how long individual works have been in the family’s possession (e.g., through purchase receipts or catalogs).
The law firm Cocron supports you in structuring inheritance law matters relating to art collections, such as wills or legacies. Tax-related details should be discussed with a tax advisor.
Most importantly: Make these decisions as early as possible and not only after the inheritance has been received.
Questions about inheriting an art collection?
The law firm Cocron offers comprehensive advice on wills, legacies and communities of heirs in connection with art ownership. Contact us at www.ra-cocron.de or book an appointment online. Locations are in Munich and Berlin.
