Leading Economist Proposes Overhaul of Inheritance Tax, Citing Fairness Concerns
The debate over inheritance tax reform in Germany has intensified as leading economists call for significant changes to ensure greater fairness and efficiency. Recent analysis highlights that the current inheritance tax system contains numerous exemptions and loopholes, particularly benefiting recipients of business assets and real estate, which has led to concerns about equity and the effective taxation of large fortunes.
Economic experts have pointed out that, despite annual transfers of wealth estimated between 300 and 400 billion euros in Germany, only a small portion is subject to taxation. This is largely due to high tax-free allowances and specific exceptions for certain asset classes. For instance, immediate family members such as children and spouses benefit from substantial tax-free amounts, which reset every decade, enabling repeated tax-free transfers of considerable wealth.
Business assets are subject to even more favorable treatment under the current regulations. Heirs of family-owned companies can, in many cases, inherit the entire value of a business with little to no tax liability, provided they meet certain conditions. These requirements, however, are described by experts as relatively easy to fulfill, effectively allowing substantial sums to pass untaxed. Recent estimates indicate that company transfers alone account for around 30 billion euros annually, with the effective tax rates on these inheritances often being considerably lower than those applied to smaller estates.
Analysts have raised the issue of regressivity in the inheritance tax structure, as wealthier individuals often face a lower effective tax rate than those inheriting more modest sums. This phenomenon contradicts the principle of equitable taxation and has triggered calls for comprehensive policy adjustments.
While there is consensus on the need for reform, proposed solutions vary. Some economists advocate for a flat-rate inheritance tax at a low, fixed percentage, suggesting this could create a more transparent and economically sustainable framework. This model would treat all inheritances equally, regardless of their size or the nature of the assets involved. Proponents argue that, to maintain the system's integrity and prevent gradual increases in the tax rate, the maximum rate should be enshrined within the constitution. This would provide long-term certainty for businesses and families, minimizing the risk of adverse impacts on investment and economic activity.
Other experts contend that the core of the inheritance tax law remains functional, requiring only targeted adjustments rather than an entirely new approach. They recommend eliminating preferential treatment for business assets and rental properties, estimating that such changes could boost tax revenues by nearly 8 billion euros annually, with the vast majority of additional revenue generated from large-scale transfers exceeding five million euros. This adjustment would impact only a small percentage of estates, challenging claims that stricter inheritance taxation would unduly burden the middle class.
To further enhance fairness and simplicity, several economists and advisory bodies suggest introducing a single, lifetime tax-free allowance--potentially set at one million euros--for all individuals, regardless of the asset type or relationship between the deceased and the heir. Such a measure would streamline the tax process, reduce opportunities for avoidance, and ensure that regular inheritances remain largely unaffected. The proposal would also significantly reduce the number of taxpayers subject to inheritance tax, concentrating the fiscal impact on the most substantial transfers of wealth.
Additionally, mechanisms such as installment payments or spreading tax liabilities over a period of ten to fifteen years are recommended to ease the immediate financial burden on recipients, particularly those inheriting business interests. This approach aims to balance the objectives of tax fairness and economic stability, mitigating concerns about liquidity shortages or job losses resulting from increased tax obligations.
Overall, the growing call for reform reflects a broader recognition of the need to align inheritance tax policy with contemporary standards of equity and fiscal responsibility. As business leaders, policy advisors, and economists continue to debate the most effective solutions, it remains clear that any future changes will have far-reaching implications for wealth distribution and economic competitiveness in Germany.