Germany’s inheritance tax system has a dirty little secret: if you’re wealthy enough, you barely pay. The SPD wants to change that, and the political fight is exposing uncomfortable truths about who really benefits from the current rules. While coalition partner Union calls the plan “anti-performance”, the Social Democrats are betting that public frustration with wealth inequality has reached a tipping point.
The Loophole That Lets Billionaires Off the Hook
The current system allows heirs of large fortunes above 26 million euros to “künstlich arm rechnen” (artificially make themselves appear poor) and avoid inheritance tax entirely. The case of billionaire Heinz Hermann Thiele, whose heirs allegedly paid four billion euros in tax after a delayed foundation setup, is held up by the SPD as proof the system works, sometimes. But these cases are rare. Most ultra-wealthy families structure their assets to pay little or nothing.
According to the network Steuergerechtigkeit, just 45 “super-heirs” saved 3.4 billion euros in taxes in 2024 alone. Meanwhile, the average inheritance in western Germany is 92,000 euros, in the east, just 52,000 euros. Half of all large inheritances go to the top 10% of beneficiaries. The SPD argues this isn’t just unfair, it’s economically destructive.
What the SPD Actually Proposes
The party’s concept paper, developed by SPD-Generalsekretär (General Secretary) Lars Klingbeil and Fraktionsvorsitzender (faction leader) Matthias Miersch, breaks with decades of practice:
- A million-euro lifetime exemption: Every citizen could inherit one million euros tax-free over their lifetime, 900,000 euros from family, 100,000 euros from non-relatives. This replaces the current 400,000-euro exemption that resets every ten years.
- Family home protection: A self-used family home remains completely tax-free when inherited, provided heirs continue living there. No tax on “Oma’s house” if you actually live in it.
- Business relief with limits: Family businesses get an additional 5 million euro exemption, with tax deferral options up to 20 years. The SPD claims this covers most Mittelstand (medium-sized) companies, handcraft businesses, doctor’s practices, small manufacturers.
- Closing the investment loophole: The reform targets the absurdity where a 2 million euro stock portfolio gets taxed while a 2 million euro suburban Munich house passes tax-free. Real estate’s special status would end unless the heir occupies the property.
Who Wins, Who Loses
Winners:
– Middle-class families: The million-euro lifetime threshold covers most normal inheritances completely. No more tax on modest family homes or savings.
– Renters and non-property owners: The reform ends the systematic discrimination against financial assets versus real estate. A stock portfolio built through decades of saving gets equal treatment to a house.
– Public education: SPD wants to channel billions in additional revenue into schools, universities, and teacher training.
Losers:
– Real estate investors: People inheriting multiple properties they don’t live in would face significant taxes. The “three villas” scenario SPD mentions would trigger hefty payments.
– Wealthy but illiquid heirs: Those inheriting valuable property without cash to pay taxes might need to sell or take mortgages, a feature, not a bug, according to reformers.
– Family dynasties: The 5 million euro business exemption still means companies worth tens or hundreds of millions would pay substantially more.
The Political Powder Keg
The Union’s reaction was immediate and harsh. CSU-Landesgruppenchef Alexander Hoffmann declared the plan “leistungsfeindlich” (anti-performance), arguing it would force family businesses to spend four to six years of profits just on inheritance tax. CDU politician Mathias Middelberg warned the plan would “kill” low-profit family companies while giving stock corporations an advantage.
SPD-Fraktionsvize Wiebke Esdar countered that “super-heirs must contribute more to the common good, it’s a question of justice.” The party estimates additional revenue in the “single-digit billions”, growing over time as wealth concentration increases.
The constitutional court’s pending ruling on whether business exemptions violate equality principles adds urgency. SPD-Finanzminister Klingbeil calls reform “unavoidable” after the expected decision.
The Real Estate vs. Financial Assets War
One commenter in the research captured the core injustice: “Why should a 2 million euro portfolio be taxed while a 2 million euro Munich suburban house transfers tax-free?” Only 25% of Germans own stocks, and among those over 60, it’s even lower. Yet homeownership remains relatively common, especially among the generation now passing on wealth.
This creates a political problem: the constituency that benefits from real estate favoritism is larger and more politically engaged than those holding financial assets. But as urbanization increases and job mobility requires people to move away from family homes, more heirs face the dilemma of inheriting property they can’t use.
What Happens Next?
The SPD plans to present its concept formally on Tuesday in the Bundestag. But with no inheritance tax reform mentioned in the coalition agreement, the Union can block changes. The SPD’s strategy appears to be building public pressure ahead of the constitutional court decision.
For individuals, the uncertainty creates planning headaches. Some are rushing to use current exemptions before rules change, though it’s unclear whether reforms would be retroactive. The ten-year rule’s abolition means the timing window for strategic gifting is closing.
The Bottom Line
This fight is about more than tax rates. It’s defining what “Mittelstand” means in modern Germany, whether a five-million-euro business qualifies, and whether someone inheriting multiple properties they don’t need is truly “middle class.” The SPD is betting that public tolerance for wealth concentration has limits, and that “tax the rich” resonates even in fiscally conservative Germany.
The Union’s defense of the status quo reveals its base: property-owning families and business owners who’ve built wealth under current rules. But with housing affordability crises in major cities and stagnating wages, the political calculus may be shifting.
One thing is certain: the days of freely inheriting millions in real estate while financial investors pay full freight are numbered. The only question is whether the SPD can force the change before the next election cycle makes it someone else’s problem.
Practical Takeaway: If you’re sitting on assets you plan to transfer, consult a Steuerberater (tax advisor) immediately. The window for using current exemptions may close soon, and the difference could cost your heirs hundreds of thousands.
