It is estimated that between 300 and 400 billion euros are inherited or given away in Germany each year. However, only 9.2 billion euros of this was recently recorded and taxed, said SPD parliamentary group deputy leader Wiebke Esdar in Berlin. The SPD therefore sees a need for action and has presented a reform concept for inheritance tax. Read all the important information about the project here.

How is inheritance law currently regulated?

Anyone who receives assets through the death of a relative is subject to inheritance tax. How high the taxes are depends on the degree of relationship and the value of the inheritance. Spouses can inherit tax-free up to 500,000 euros, children up to 400,000 euros. Taxes must be paid on everything beyond that; the tax rates vary between seven and 50 percent.

Large sums can currently be passed on without paying taxes and during your lifetime. This is made possible through so-called donations. The same allowances apply as for inheritance. What is special is that this allowance can be used again every ten years. This makes it possible to transfer a large amount of assets over a longer period of time.

Real estate can be inherited tax-free if the child lives in it for at least ten years and the living space is less than 200 square meters.

Why is the SPD planning an inheritance tax reform?

According to the German Institute for Economic Research (DIW), around half of the wealth in Germany was not earned, but was inherited or donated. With their “Fair Heirs” concept, the Social Democrats are reacting to what they see as the unfair distribution of the tax burden. “Inheriting in itself is nothing wrong,” says the concept available to ZEIT. However, it is unfair that the current inheritance tax law particularly protects large assets and therefore distributes opportunities unequally.

According to the Social Democrats, there are tax rates of up to 50 percent, but in their opinion they hardly have any effect. Extensive exceptions mean that tax is often due on small and medium-sized private inheritances, while little to no tax is paid on large assets. One example is the exemption regulation: It currently stipulates that heirs can apply for a tax reduction for assets of 26 million euros or more if they cannot pay the tax from their own assets.

What changes does the reform provide?

At the center of the concept of SPD is the so-called life allowance. For each heir it should be one million euros and can be received tax-free through inheritances and gifts. Of this, 900,000 euros should be able to be inherited tax-free within the family. The remaining 100,000 euros should be added to donations or inheritances from other people. The SPD no longer wants to continue the ten-year rule for donations.

The aim of the life tax allowance is to end tax avoidance gifts and to relieve the vast majority of inheritances from tax. In most cases, the grandparents’ house or property should be inherited tax-free.

If a company is transferred, a new exemption amount of five million euros should apply. Assets beyond this would be subject to progressive taxation, the document says. This means that the tax rate increases depending on the amount of assets. To ensure that no one has to give up their business, it should also be possible to pay off the taxes over a period of twenty years. The exemption regulation should be abolished.

What would the reform mean for the federal states?

The Social Democrats expect their reform to generate additional tax revenue amounting to a small single-digit billion amount each year. According to the SPD, the amount would increase over the years because tax deferrals for companies gradually expire.

The federal states receive the additional revenue. The SPD wants the money to be used to strengthen the education system.

What reactions are there to the draft reform?

Criticism has so far come from the coalition partner, the Union, among others. CSU boss Markus Söder said The Pioneerthat the proposal would massively weaken the German economy. The deputy chairman of the Union parliamentary group, Mathias Middelberg (CDU), criticized that the reform placed an additional burden on family businesses in medium-sized businesses.

Business associations also express criticism of the SPD’s plan. The capital of family entrepreneurs is invested in the company, said Berthold Welling, managing director of legal and tax affairs at the Association of the Chemical Industry (VCI). Editorial Network Germany. Every additional tax reduces investment and puts jobs at risk. What is needed now is “planning security, but no debate about tax increases.”

With material from the news agencies AFP, dpa, Reuters