Inheriting or gifting a portfolio: inheritance and gift tax, valuation and gifting in tranches

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If you want to pass on a portfolio in Germany, by inheritance or as a gift during your lifetime, you deal with two taxes: inheritance and gift tax on the value at the valuation date, and later the flat-rate withholding tax (Abgeltungsteuer) on the gains, because the acquisition costs pass to the heirs. The most important lever is time: allowances renew every ten years. Here you will find the tax classes, allowances and rates as of October 2026, how a portfolio is valued and reported, what usufruct, a joint either-or account and a power of attorney achieve, and how much gifting in tranches saves. Not tax or legal advice.

Inheritance and gift tax: the basic rules

The same law governs inheritances and gifts (ErbStG 1997). How much remains tax-free and which rate applies depends on the degree of kinship: it determines the tax class (§ 15) and the personal allowance (§ 16).

On inheritance, a flat €15,000 for the funeral and the settlement of the estate is deducted in addition, without proof (§ 10 para. 5 ErbStG, the Inheritance and Gift Tax Act). The allowance applies per recipient and per donor: a child can receive €800,000 tax-free from mother and father together. The statistics show how much this matters in practice: in 2025, the tax offices assessed €21.4 billion in inheritance and gift tax, of which €13.3 billion was on inheritances and €8.1 billion on gifts. Most transfers, however, fall within the allowances and do not appear there at all (Destatis 2026).

Tax rates and hardship relief

The rate applies to the entire taxable acquisition, not just to the part above the threshold (ErbStG (1997), § 19). So that one extra euro does not cost much more tax, there is hardship relief (Härteausgleich): just above a threshold, the additional tax is only levied to the extent that it can be covered by half (for rates above 30%, three quarters) of the amount above the threshold. The taxable acquisition is first rounded down to the nearest full €100 (§ 10 para. 1).

The 10-year rule

All acquisitions from the same person within ten years are added together (ErbStG (1997), § 14): the tax office adds the earlier ones, at their value at the time, to the latest acquisition and deducts the tax that would have been due on the earlier ones. The ten-year rule makes gifts plannable: if more than ten years pass between two gifts, the allowance is available again in full. Conversely, a gift shortly before death counts towards the inheritance. The allowance then applies only once to both.

Under civil law, a second clock is running: persons entitled to a compulsory share (Pflichtteil) can demand that gifts be added back to the estate, in full in the first year before the death, then one tenth less with each year, and not at all after ten years. For gifts to a spouse, the period only begins when the marriage ends (BGB (1896), § 2325).

How a portfolio is valued and reported

• Shares, bonds, ETFs on the stock exchange: at the lowest price quoted on the regulated market on the valuation date; if there is none, at the last price within the 30 days before (BewG (1991), § 11 para. 1). The valuation date is the date of death or the day on which the gift is executed.
• Investment funds: at the redemption price (§ 11 para. 4 BewG, the Valuation Act).
• Bank report on death: within one month, banks notify the inheritance tax office of what a deceased person held with them (ErbStG (1997), § 33), including joint accounts; only for amounts up to €5,000 is no report required (ErbStDV 1998).
• Report on gifts: if a portfolio is transferred to another person free of charge, the bank reports its value and acquisition costs to the tax office by 31 May of the following year (EStG §§ 43, 43a, 44a (2009), § 43 para. 1). Independently of this, the recipient and the donor must report the gift within three months (ErbStG (1997), § 30).

Income tax: the acquisition costs carry over

If you inherit a portfolio or receive one as a gift, you take over your predecessor's acquisition: for the flat-rate tax, the purchase date and acquisition costs (cost basis) of the deceased or the donor apply (§ 20 para. 4 sentence 6 EStG (2009)), and the bank transfers the data along with the securities. Germany has no step-up as in the US, where inherited assets take their market value on the date of death as the new cost basis (26 U.S.C. § 1014 1954). Unrealised gains are therefore taxed twice: with inheritance tax on the full value and later with the flat-rate tax.

Structuring options: tranches, usufruct, joint account, power of attorney

• Gifting in tranches: give away amounts up to the allowance every ten years; the increase in value after the gift accrues tax-free to the child (calculation below). Gifted portfolios follow the valuation and reporting rules above.
• Reserving usufruct (Nießbrauch): you give away the portfolio but keep the income. The capital value of the usufruct reduces the value of the gift: the annual value times a multiplier based on age and sex from the life table, which the BMF (Federal Ministry of Finance) publishes every year; the annual value is capped at the value of the portfolio divided by 18.6 (BewG (1991), §§ 14, 16). Accumulating funds pay out hardly any income. In our understanding, a usufruct is worth little there and is difficult to structure.
• Joint either-or account (Oder-Depot): each holder may dispose of it alone; between themselves, joint creditors are deemed, in case of doubt, to be entitled to half each (BGB (1896), § 430). If only one spouse pays in, this can be a gift to the other if the other can freely dispose of half; the burden of proof lies with the tax office (BFH 2011). On death, the bank also reports the joint account.
• Power of attorney beyond death: in case of doubt, a mandate does not end with death (BGB (1896), § 672); with such a power of attorney, a trusted person can act immediately without waiting for the certificate of inheritance (Erbschein). The heirs can revoke it (§ 168).
• Chain gifts (Kettenschenkung): if a child passes on the parents' gift to their spouse or to grandchildren, these are two gifts, each with its own allowance, but only if the child was free to decide. If the child was obliged to pass it on, the tax office treats it as a direct gift from the parents to the third party, with that person's usually less favourable tax class; a joint deed is an indication of this (BFH 2013).

Worked example: €1.2 million in tranches

Illustrative figures: a mother wants to transfer a portfolio worth €1,200,000 to her daughter. For simplicity, the value stays constant; more than ten years apart here means “a little more than ten years”, so that the ten-year period has definitely expired.

Splitting the gift achieves nothing within ten years: the second gift then bears the entire tax. Only a gap of more than ten years renews the allowance. Then there is growth: €400,000 that is given away today and grows at 5% a year for 20 years is worth €1,061,319 to the child. The gain of €661,319 is never subject to gift tax. If you leave the portfolio as an inheritance instead, the grown value is taxed.

As of October 2026: the Constitutional Court is reviewing the allowances

The allowances and tax rates of the ErbStG have been unchanged for years. On 12 October 2026, the Federal Constitutional Court (Bundesverfassungsgericht) held an oral hearing on an application by the Bavarian state government (1 BvF 1/23): among other things, it considers the personal allowances and the tax rates to be unconstitutional, partly because they have not been adjusted for inflation, and argues that the allowances should take regional differences in property prices into account (Federal Constitutional Court 2026). As of our information on 27 October 2026, no decision had yet been made. The figures in this article reflect current law.

Advanced: hardship relief and growth

Example for tax class I with a taxable acquisition of €650,000: 19% would be €123,500; with hardship relief, it is €90,000 + 50% × €50,000 = €115,000. Hardship relief applies up to the point at which both calculations are equal, here at €677,419. In class III, there is no jump up to €6 million, because the rate is 30% throughout.

The value of early gifts rises with the expected return: without a gift, the future tax grows with the assets; with a gift, the assets grow with the child without further gift tax. At a 5% return, an amount doubles in just over 14 years. Because the acquisition costs carry over, the gift does not change the later flat-rate tax. It is simply paid by the child, possibly at a lower personal rate via the most-favourable assessment (Günstigerprüfung) (see Kinderdepot, on investment accounts for children).

What the research shows

From a tax perspective, it would often be optimal to make gifts early and regularly. Yet many wealthy people do not. Using US data, Poterba (1998) showed that even among older households with more than $2.5 million in wealth, only about 45% made use of tax-free gifts during their lifetime. Households with a lot of illiquid wealth, such as their own business, made gifts less often, as did those with large unrealised gains, for which the US step-up on death is particularly valuable. In Germany, this incentive does not exist, because the acquisition costs carry over anyway.

In a review, Kopczuk (2012) sums up why so many hesitate: bequest motives are mixed, preferences differ, and many people care about keeping control over their wealth. This is exactly what structures such as usufruct address: they shift the tax without the donor having to give up the income straight away.

Limitations and common mistakes

• Missing the deadline by a whisker: ten years means ten years. A gift made one day too early is added together with the next.
• Not reported: even tax-free gifts should be documented and reported; otherwise it is hard to prove later when the period began.
• Joint account as a tax trap: payments by only one spouse can be a gift; with large amounts, the spousal allowance can be exceeded.
• Passing on a gift by arrangement: a pre-arranged chain can be treated as a direct gift to a recipient with a less favourable tax class.
• Forgetting the flat-rate tax: the heirs take over the old acquisition costs. The tax on unrealised gains comes on top.
• Underestimating the loss of control: a gift is final; it can only be reclaimed in narrow cases, for example if the donor becomes impoverished within ten years (BGB (1896), §§ 528, 529).

Inheritance and gift law depends heavily on the individual case. This article is not tax or legal advice; for structures such as usufruct, professional advice is worthwhile.

How Portfolio Lab calculates

Portfolio Lab does not calculate inheritance or gift tax. There are, however, tools for the flat-rate tax on an inherited portfolio: in Financial goals, you enter under “Cost basis of the assets today” what share of the portfolio is acquisition cost. A value of 40% would mean that 60% are unrealised gains, which are taxed on sale. You can enter planned gifts there as a “Goal (one-off)” and see whether your own assets are still sufficient afterwards.

In the Backtest, the “Sell the portfolio at the end” switch shows how much flat-rate tax would fall due in one go on sale. This is useful for estimating a portfolio's latent tax. Kinderdepot describes how a child can pay little tax on inherited or gifted gains, and saving tax in your portfolio covers loss offsetting.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.