Make a gift now before inheritance tax is reformed!

Inheritance tax is currently the subject of much debate. Political statements are piling up, particularly in light of an upcoming decision by the Federal Constitutional Court.

The SPD was the first to present a concrete concept for reform.

What does the SPD's concept envisage and how should it be assessed?

• Lifetime allowance of EUR 900,000 in the family for all relatives listed in the current tax classes I and II (spouse or partner, children, grandchildren, parents, grandparents, siblings, nieces, nephews and family-in-law).

Rating: The previous allowances apply per donor/testator. In contrast, the concept is based on the acquirer. If you add up the previous allowances from the parents alone, this already amounts to EUR 800,000; 4 grandparents each have an additional EUR 200,000, i.e. a further EUR 800,000 with corresponding assets. The tax-free allowances are currently also granted every 10 years. This is therefore a significant deterioration for wealthy families.

• Additional tax-free allowance of EUR 100,000 for other acquisitions.

Rating: This corresponds to the current tax-free amount for the acquisitions of 5 persons (EUR 20,000 per person). This represents an improvement for non-marital partnerships.

• Company allowance of EUR 5 million; the tax for acquisitions above this amount is to be deferrable over a period of 20 years.

Rating: This is an economic destruction programme. In view of the fact that the favours for companies are to be abolished, the tax-free amount is far too low. This would mean that successors would be transferring profits to the tax office for years instead of investing the money in the company. The SPD overlooks the fact that the assets of entrepreneurs do not usually consist of sacks of money, but of machines, factory buildings and other operating resources. Succession must remain attractive for the younger generation. Otherwise, entrepreneurs will consider whether selling the business is a better alternative for the family assets.

• The tax exemption for the family home is to remain in place.

Rating: This is to be welcomed.

What is missing from the SPD's concept?

The tax rate - the SPD has not yet commented on this. At current tax rates, companies would be destroyed by the dozen. If the tax rates were significantly lower than at present, the burden would possibly be manageable. The tax rate may be kept open as a bargaining chip for the coalition partner CDU.

Does the concept have a chance of being realised?

The expected judgement by the Federal Constitutional Court could bring about a need for change. The CDU has so far ruled out tax increases. The shelf life of such promises has recently proved to be very short. If the tax rates for all were to be lowered with the abolition of favours for entrepreneurs, the CDU could sell this as a negotiating success vis-à-vis the SPD.

What needs to be done?

Entrepreneurs should always tackle succession planning. If a handover to the younger generation is planned in the coming years, this should be addressed quickly. It is very unlikely that a reform will result in more favourable regulations for entrepreneurs. In all likelihood, it will not be more favourable than at present. Uncertainties with regard to a future regulation can be countered with a tax cancellation clause in the gift agreement.