Germany’s Social Democratic Party (SPD) wants to tax large inheritances more heavily in the future and make the current system fairer and simpler. In a proposal presented by the parliamentary group on Tuesday, the party called for million-euro tax allowances for private heirs and businesses, as well as progressive tax rates. The plans drew criticism from coalition partner the conservative Union bloc and from parts of the business community, which oppose tax increases and warn of companies relocating abroad.
Up to 400 billion euros are inherited or gifted in Germany each year, according to the SPD. Yet because of numerous exemptions, only just over nine billion euros were recently taxed, said deputy parliamentary group leader Wiebke Esdar. The current system, she argued, follows the principle that “those who inherit little pay proportionally a lot, while those who inherit a lot pay almost nothing.” That, she said, is unfair and must be reformed.
Under the SPD proposal, individuals would receive a lifetime tax-free allowance of one million euros per person. This would consist of 900,000 euros inherited from relatives and 100,000 euros from non-relatives. In addition, an inherited home that is owner-occupied would remain tax-free. Only amounts above these thresholds would be subject to inheritance tax, which would then rise progressively, meaning large inheritances would be taxed significantly more.
For businesses, the SPD proposes a tax-free allowance of five million euros and the option to spread tax payments over 20 years. This, the party says, would mainly ease the burden on small and medium-sized companies. “That means that the vast majority of companies would not have to pay any inheritance tax at all,” Esdar said. Existing exemption rules, which have primarily benefited business assets, are to be abolished.
The SPD also wants to introduce a single tax class with progressively increasing tax rates. Concrete rates have not yet been specified and are to be negotiated with the Union. After initially lower revenues, the SPD expects additional income in the “low single-digit billions” of euros, rising in the coming years.
While the SPD argues that most heirs would benefit from the reform and that the burden would shift to very large inheritances, the Union fears broad tax increases, particularly for business assets that have so far been transferred largely tax-free. CSU leader Markus Söder welcomed the planned increase in allowances but described the proposed changes to business assets as an “invitation to emigrate.” He also accused the SPD of deliberately provoking conflict within the coalition.
The German Chamber of Industry and Commerce said the proposed five-million-euro allowance was “disproportionately low,” meaning that in most cases substantial tax payments would become due, as this threshold could be reached quickly when valuing companies.
Economist Sebastian Dullien from the IMK at the Hans Böckler Foundation, which is close to trade unions, described the plans as “a sensible step.” “The SPD is addressing the important problem that inheritance tax in Germany is often avoided or massively reduced, especially by very wealthy heirs,” he said. The welfare group Arbeiterwohlfahrt also said it was “simply right to involve people with very large fortunes more strongly than before.”
Left Party parliamentary leader Heidi Reichinnek welcomed the plans, calling the inheritance tax in its current form “one of the most unjust taxes in the country.” However, she accused the SPD of copying proposals from the Left and described the move, ahead of upcoming state elections, as an “absolutely transparent maneuver.” Sahra Wagenknecht, founder of the BSW party, said she was convinced that the SPD’s demands “will certainly not come during this legislative term.” If the party were serious, she said, it “would have negotiated them into the coalition agreement.”
Before a concrete draft law is introduced, the SPD plans to wait for a pending ruling from Germany’s Constitutional Court, which is currently examining exemption rules for business assets. According to the court, a decision is expected later this year, though “not in the coming months.”
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