Inheritance Tax Burden in Germany in International Comparison: Small Assets Subject to Small Tax Burden, Large Assets Subject to Large Burden

In periods of strict public budgeting, many a politician chooses to bring up the issue of inheritance and gift tax. It is often argued that an increase in the levels of inheritance and gift tax in Germany would be justified by the fact that current levels are lower than those in a number of other countries. In an assessment carried out on behalf of the Federal Ministry of Finance (BMF), the Centre for European Economics Research (ZEW) in Mannheim aimed to find out if this is in fact the case.

Together with researchers from the universities of Erlangen-Nürnberg and Gießen, an inventory detailing inheritance tax legislation in fifteen countries has been created. Amongst the countries included are the United Kingdom, France, Switzerland and Austria.  

Comparison of these countries indicates that Germany implements, on the one hand, generous assessment criteria (this is particularly the case when it comes to the transfer of business assets and real estate), advantageous tax reliefs for the transfer of business assets and large personal tax-free allowances for transfers made to spouses and children. In contrast, however, Germany imposes comparatively high tax rates.

In order that German legislation could be compared to that which applies in other countries, the ZEW study was carried out using an EDV programme specifically developed for the comparison of inheritance tax across countries. This programme analyses and compares the inheritance tax legislation which applies when individual businesses or shares in corporations are transferred. The programme also considers tax legislation relevant to the transfer of private assets to a spouse or a child.

The study indicates that where small, private assets, such as a family home or the equivalent value in savings, is transferred to either a spouse or child in Germany, the imposed tax burden is relatively low in comparison to that which applies in other countries. As a result of large personal tax-allowances, for example, the transfer of representative private assets to a spouse in Germany remains untaxed. In the case of a transfer made to a child, the applicable tax burden may be reduced by 0.3 percent of the total value of the assets transferred. The transfer of such small assets constitutes by far the greatest proportion of all inheritance transfers made in Germany.

When it comes to transferring larger sums, those which exceed the two-figure million mark, however, Germany’s position in comparison to that of other countries clearly worsens.  In regards to the transfer of such large private assets to a spouse, Germany ranks in the bottom third of all countries included in the study. Where such sums are transferred to a child, Germany remains in the mid-range.  

In comparison to legislation which applies to the transfer of private assets in Germany, those pertaining to the transfer of business assets are somewhat less advantageous.  Where a representative mid-tier business is transferred to a child, Germany ranks seventh amongst fifteen other countries. This is the case regardless of the legal form of the transferred business assets which may be transferred either in the form of an individual firm or shares in a corporation. The transfer of individual companies is subject to a considerably lower tax burden (3.77 per cent of the company worth) than the transfer of shares in a corporation (6.08 per cent).Such tax burdens, which are dependent on the legal form of the business, are also imposed, however, in the other countries.

Note from the Editor

The report is published in the ZEW Wirtschaftsanalysen [ZEW Economic Analyses], Nomos-Verlagsgesellschaft, Baden-Baden.

Contact

Prof. Dr. Thiess Büttner, E-Mail: buettner@zew.de

Wolfram Scheffler, Phone: +49(0)911/5302-346, E-mail: scheffler@steuerlehre.com

Christoph Spengel, Phone: +49(0)641/99-22550, E-mail: christoph.spengel@wirtschaft.uni-giessen.de