A potential overhaul of Germany’s inheritance tax system is being proposed, focusing on a lifetime allowance and tying tax liabilities to rental property ownership. The proposal, spearheaded by SPD General Secretary Tim Klüssendorf, aims to address perceived inequities and generate substantial revenue.
At the core of the suggested reform is the introduction of a “lifetime allowance” – a specific sum of money an individual can inherit or receive as a gift during their life without incurring tax obligations. Amounts exceeding this threshold would be subject to standard inheritance tax rates. Currently, parents can transfer up to €400,000 tax-free to their children every ten years. Klüssendorf argues that this system is susceptible to exploitation by wealthy families who systematically transfer large sums over time, effectively circumventing the intended purpose of the tax.
The proposal also challenges the current system’s reliance on familial relationships to determine tax-free allowances. Klüssendorf suggests allowing individuals greater flexibility in designating beneficiaries, decoupling the allowance from strict bloodline connections.
The precise monetary value of the proposed lifetime allowance remains to be determined, but Klüssendorf emphasized the need to protect smaller inheritances while ensuring that substantial, multi-million euro inheritances are adequately taxed. He anticipates a comprehensive reform could generate a double-digit billion-euro revenue stream.
Furthermore, Klüssendorf proposed a novel approach to inheritance tax for large rental properties. Individuals inheriting substantial portfolios of rental buildings could potentially receive tax reductions if they commit to practices such as adhering to local rent levels or limiting rent increases. This incentive aims to curb potential rent speculation following inheritance.