Germany agrees with stricter IHT rules

Germany’s main political parties have reached an agreement on long-awaited inheritance tax reforms, with the proposed changes expected to be passed by Parliament by July. Amendments to Germany’s inheritance tax law are required after the country’s Constitutional Court ruled in 2014 that existing rules breach the principle of fiscal equality. Under Germany’s 2009 inheritance tax law, heirs of assets from companies with more than twenty employees are exempt from inheritance tax provided that the business remains operational for at least ten years and that jobs are maintained. It is a system that many argue helps Germany to maintain high levels of employment and enables small and medium-sized businesses to use assets for growth rather than for paying potentially large inheritance tax bills. Inheritance tax rates in Germany can be as high as 43 percent, depending on the relationship between the deceased and the heir. However, others argue that these tax breaks are unfair as they benefit mainly wealthy individuals, while also helping to concentrate large amounts of wealth among a relatively small number of families. Under the changes agreed by the coalition parties, including the Christian Democratic Union, its Bavarian sister party the Christian Social Union, and the Social Democratic Party, companies with fewer than five employees will be exempt from inheritance tax. Firms employing more than five employees will be liable to inheritance if the company’s assets exceed certain thresholds, and those inheriting more than EUR26m (USD29.5m) would have to show that paying inheritance tax would damage their business in order to claim a reduction. The amended legislation would eliminate tax exemptions and reductions completely for inheritances exceeding EUR90m. The agreed changes will apply from July 1, 2016, although they need to be approved by Parliament before they can be given legal force. The amendments are expected to raise an additional EUR235m in tax revenue.