Estate Levies The Rich Getting Richer

The proceeds of Germany’s inheritance and gift tax are at a record high. But revenues aren’t being shared equally among German states, and wealthy individuals are finding ways to avoid paying.
Exemplifies the accumulation of wealth in the hands of the few - Hamburg's Blankenese district.

Revenues from Germany’s controversial inheritance and gift tax skyrocketed in the past year, according to new data from the federal finance ministry. Heirs and recipients of gifts paid almost €5.5 billion, an 18 percent increase over the previous year.

It was not clear from the data what percentage of the money came from voluntary admissions about false or incomplete tax declarations.

Germany’s 16 states get the tax payments, and officials at each can rejoice in their highest revenues ever. The rejoicing, however, can be expected to vary from state to state because a large part of the tax revenue comes from – and stays - where wealth is concentrated and state finances are in order anyways.

For example, 12.5 million Bavarians in southern Germany paid €1.2 billion ($1.37 billion) in inheritance taxes, while the 12.5 million inhabitants of the five eastern German states paid only €93 million ($106.66 million) altogether. The smallest adjustment to the beer tax would have more fiscal impact for financial ministers in the eastern states than would a reform of the inheritance tax.

In 2014, the city of Hamburg in northwest Germany was the clear leader in inheritance-tax revenues per capita. On average, each Hamburg resident paid €165 to the city's finance senator Peter Tschentscher — more than twice as much as the country's average and 30 times as much as in the state of Thuringia in the former East Germany.

Only 3 percent of wealth transferred as gifts was paid as tax in 2013, compared to 11 percent in 2009.

The inheritance tax is to be paid by heirs, but it’s collected in the state where the deceased person last lived. There is no subsequent dividing up of the revenues. The Council of Economic Experts has accordingly proposed that the inheritance tax be transferred to the federal government.

The amount of inheritance tax paid reflects only part of the actual transfers of wealth. Thanks to legal tax tricks, even large fortunes can be bequeathed or given for the most part tax-free.

New figures from the Federal Statistics Office for 2013 confirm this criticism. The amount of wealth transferred by gift since the law on inheritance tax reform came into effect in 2009 rose from €12.9 billion to more than three times that amount, €39.9 billion, in 2013.

Taxation has not nearly kept up. Despite the big increase in wealth transfers, taxable gifts declined by 13.7 percent and the actually imposed tax by 21.4 percent.

Only 3 percent of wealth transferred as gifts was paid as tax in 2013, compared to 11 percent in 2009.

In 356 cases, fortunes of more than €20 million were transferred as gifts or inheritance, but only in 134 cases were any taxes paid at all. While 52 out of the 55 large-scale heirs paid taxes, 215 of the 297 recipients of large gifts avoided enriching finance offices in the slightest.

Looking at these facts, it's no wonder that no other tax is the subject of such emotional debate as the inheritance tax. For some it is nothing other than a job killer. For others, it is the income-distribution instrument par excellence.

In December, Germany’s highest court in an unanimous decision struck down a law allowing companies to be inherited tax-free. Three members of the eight-judge panel issued a supplementary decision saying the judgment should have included wording to make sure revised rules didn’t lessen the inheritance law’s basic purpose.

“The inheritance tax not only promotes tax collection but also serves as an instrument of the welfare state, in order to prevent wealth being accumulated over generations in the hands of only a few and growing disproportionately on the basis of origin or personal connection,” constitutional law judges Reinhard Gaier, Johannes Masing and Susanne Baer said in their decision.  “The creation of an adjustment of otherwise fixed inequalities is a responsibility of politics — but is not up to its discretion.”


Axel Schrinner writes about tax and finance policy for Handelsblatt. To contact the author: [email protected].