Inheritance tax: Trades criticize SPD plans

"Hands off business assets!" That's the German Confederation of Skilled Crafts' (ZDH) reaction to the SPD's inheritance tax plans. Before discussing changes to inheritance tax, the ruling of the Federal Constitutional Court should be awaited.

The SPD wants to reform inheritance tax. Large estates would be taxed more heavily. Small and medium-sized inheritances would be relieved of some of the burden, including through a tax-free allowance of around one million euros per inheritance. Inheriting the family home or condominium would remain tax-free if the heirs continue to live there. 

Also for Heirs of businesses The SPD with its concept "Fair Inheritance" Proposals have been submitted. These include company tax allowances of five million euros. "Family inheritance will be protected." Multimillion and billion-dollar inheritances "They will be held more accountable," it says. 

The Central Association of German Skilled Crafts (ZDH) Several other business associations strongly reject the reform proposals. The CDU/CSU is also against the plans. "Keep your hands off the company's assets," says ZDH President Jörg Dittrich. "Before discussing changes to inheritance tax, we should first await the ruling of the Federal Constitutional Court. Anything else is premature and jeopardizes jobs and apprenticeships." 

How are business assets currently protected?

When transferring a craft business, there is currently a choice between two exemption models, provided that the favored domestic business assets do not exceed 26 million euros: 

• Exemption from the rules: 85 percent of the eligible assets remain tax-free if the company continues to operate for at least five years and the payroll obligation* is met.
  
  
• Option exemption: 100 percent of the eligible assets remain tax-free if the company continues to operate for at least seven years. An increased payroll tax requirement applies*.

*The payroll obligation means that the total payroll in the company must be maintained over several years; otherwise, inheritance or gift tax will be retroactively levied. The same applies to a (partial) sale of the business. 

Source: ZDH

Proceedings before the Federal Constitutional Court

ZDH President Jörg Dittrich Photo: © ZDH/Henning Schacht

The ruling by the Karlsruhe judges on inheritance tax has been pending since 2022 and was expected in autumn 2025, but it has been delayed. The lawsuit was brought by an heir who objected to the current tax regulations. Preferential treatment for business assets in inheritance cases sees itself as disadvantaged. The trade association sees things differently. President Dittrich emphasizes: "Justice means making a clear distinction between an inherited yacht or property and a business that bears responsibility for employees and trainees."

The SPD wants to Abolish exemptions for businesses and through a Tax-free allowance for business assets amounting to five million euros replace. "This amount may seem high at first glance, but it is quickly reached when you consider, for example, company premises or machinery." A crane alone can cost 500.000 euros, the argument goes.

The ZDH is also irritated that the central criterion for tax relief in inheritance tax, namely the long-term job security, is to be abolished. According to the SPD plans, this will only be noticeable in the extension of the deferral.

Dittrich warns against a "significant tax increase". Businesses whose revenue exceeds the new tax-free allowance of five million euros would then potentially bear a "tax burden that threatens their substance and their business".

The SPD sees this in its concept Tax deferrals beforeThe German Confederation of Skilled Crafts (ZDH) also criticizes this. "While this shifts the tax payment to a later date, it does not change the SPD's fundamental decision to propose significant tax increases in the current situation – which come with risks for investment and employment. Germany is already a high-tax location. Further burdens would reduce our competitiveness and weaken our attractiveness as a business location in the competition for skilled workers and future investments."

The German Chamber of Industry and Commerce (DIHK) also warns against the proposals.

Also the DIHK-Chief Analyst Volker Treier Treier warns against the SPD proposals. These would lead to a significantly higher burden on the transfer of business assets. This is "poison for the investment location," says Treier. "The proposed tax-free allowance of five million euros for companies would be disproportionately low, meaning that substantial tax payments would be due in most cases. When valuing businesses, the Tax-free allowance quickly reached"This is particularly relevant when commercial properties, factory buildings, production facilities, warehouses, vehicle fleets, and other assets are transferred to the next generation. The proposed scale of the transfers demonstrates a lack of understanding of small and medium-sized enterprises (SMEs) and the corporate structure in Germany."

DIW: "It may be necessary to limit tax rates"

A positive reaction to the SPD's reform plans comes, among others, from... German Institute for Economic Research (DIW)The proposals for reforming the inheritance tax would be a step in the right direction, he says. DIW tax expert Stefan Bach"If the tax-free allowances are increased to one million euros, the number of taxpayers is halved and the bureaucratic burden is significantly reduced. At the same time, these allowances should apply for life and not be renewed every ten years as before, which many high-net-worth individuals currently use to avoid inheritance tax."

The DIW also considers the proposal to provide small and medium-sized enterprises with up to five million euros in additional tax relief to be sensible, unlike its stance on the skilled trades. "If necessary, tax rates must be capped. In any case, the tax burden in the case of company transfers should be deferred and paid off in installments over the long term, so that it can be repaid from profits and the companies' existence is not jeopardized."

Source: ZDH; DHB; DIW

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