The SPD’s FAIRErben proposal for reforming inheritance tax

In addition to simplifying the current law, the SPD is concerned with eliminating injustice, which it sees in the current inheritance tax law and, in particular, in the fact that large corporate assets can be transferred almost tax-free, while smaller assets are subject to a higher tax burden in comparison.

With the lifetime allowance of up to €1 million, the proposal combines the extension of the tax allowance to a wider family circle. In future, this will include all relatives who were previously assigned to tax classes I and II, i.e., in addition to spouses, children, and stepchildren, also

• grandchildren
• siblings
• nieces, nephews
• and the in-laws

For example, a childless uncle should be able to transfer assets worth up to €900,000 to his niece tax-free (compared to €20,000 at present), which is just as welcome as the idea of an allowance of €100,000 for gifts to people outside the family (compared to €20,000 at present).

However, with regard to the future tax burden, the proposal is currently missing a very important component. Tax allowances are one thing. Another is the tax rates that are to be applied after the allowances have been used up. Only in combination do both elements determine the effective tax burden and, ultimately, the acceptance of reform proposals. The current range of tax rates from 7% to 50% spread across three tax brackets clearly illustrates this. It would therefore be of great interest to know what tax rates the SPD envisages in combination with the allowances it has proposed. Does it tend toward a progressive rate as before or a flat tax? If the latter, should it be 10%, 18%, or 25%?

With its proposal, the SPD is calling for a fairer tax system, with the amount of tax payable based on the personal financial capacity of the beneficiaries. It is thus addressing an imbalance that prompted the Handelsblatt newspaper to run the headline in November 2025: More than 250 super-rich individuals have inherited millions tax-free. Those who receive company shares save money, while those who inherit apartments or cash pay tax.

According to a study by the DIW Berlin published at the same time on behalf of the BÜNDNIS 90/DIE GRÜNEN parliamentary group, acquirers with transfers of 5 million euros or more account for only 0.7% of all inheritance tax payers, but receive 32% of all transfers recorded for tax purposes. This group even accounted for 68% of tax-exempt company transfers. The average tax burden is higher for transfers under €500,000.

How can inheritance tax law be reformed in a way that places an appropriate burden on large estates and high-income heirs without jeopardizing the continued existence of small and medium-sized enterprises?

Representatives of small and medium-sized enterprises criticize that an allowance of €5,000,000 is not sufficient, as a large number of small and medium-sized enterprises are well above this threshold. They also argue that a tax deferral of up to 20 years does not serve the heirs, as the tax must ultimately be paid and, in case of doubt, withdrawn from the company.

In fact, a deferral arrangement alone is unlikely to achieve the goal of a regulation based on the ability-to-pay principle in all cases. Just think of a company that is handed over to the next generation at the height of its success and with a correspondingly high valuation, but which then falls into crisis in the following years. The once high value of the company then literally vanishes into thin air, without this changing anything about the tax that was once assessed and has been deferred to date.

One approach to reform could also be to move away from the privileges granted to corporate assets under current law, which go as far as complete exemption. If we look at neighboring France, we see that the exemption rules there do not exempt 85% to 100% of the transferred company value from inheritance tax, as is the case in Germany, but only 75%. A quarter of this value is taxed consistently. There are no deferral rules. Furthermore, French tax law does not link the exemption to maintaining the wage bill, as is the case in Germany, but exclusively to a minimum period during which the successors are not allowed to sell their share in the company. This criterion gives companies room for a necessary adjustment to changing economic conditions, which may also entail layoffs.

Not least, the changing business environment of numerous companies in the future due to the increased use of artificial intelligence in almost all areas of the economy raises the legitimate question of whether, in particular, maintaining the wage bill as a criterion for claiming exemption under German inheritance tax law is still appropriate.

In general, the SPD’s reform proposal could give rise to a debate on whether it is not time to at least gradually coordinate German inheritance tax law with that of foreign legal systems. Particularly when we consider our largest trading partner, France, and the numerous entrepreneurial families that exist in the German-French context and are confronted with the tax laws of two different countries in the event of business succession, this would be an excellent opportunity to combine the search for fairer taxation with the strengthening of Europe as a business location.