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Germany's Inheritance Tax Reforms Under Threat,
by Ulrika Lomas, Tax-News.com, Brussels
Monday, October 13, 2008
Government ministers face mounting pressure as the deadline for agreeing radical
reforms of the German inheritance tax law looms ever nearer.
Although the key points of the new law have already been established, a
few outstanding questions remain. Time is of the essence, as,
if a consensus is not achieved and the proposals are not brought before Parliament
by the end of this year, the reform will collapse.
Proposed changes to the inheritance tax law, approved by the government-commissioned
working group in Berlin, will benefit some, whilst disadvantaging others.
Those benefiting from the reform are close relatives who inherit - spouses,
children and grandchildren - as, although the tax rate will remain unchanged,
they will be entitled to a higher tax allowance. Those benefiting are outlined
as follows:
In future, a spouse will be able to inherit a sum of up to EUR500,000 without
having to pay any inheritance tax. Up until now this figure had been set at
EUR307,000.
Under the reform, registered long-term relationships will be granted the
same tax allowance as married couples, which marks a significant increase
from the existing EUR5,200 allowance.
Children who inherit a sum of over EUR400,000 will pay inheritance tax.
Grandchildren will pay tax on an inheritance sum in excess of EUR200,000.
In addition, just as before, there is a tax allowance of EUR40,000 for household
contents and EUR12,000 for objects.
Even taking into account the greater tax allowances, those set to be worse off
under the new proposals include those who own several properties or those who
own expensive property.
The reform stipulates that houses or flats are to be taxed on their actual
value, signalling the end of the special position enjoyed up until now, as inheritance
tax is often only due on half of the actual value.
According to Anton Steiner, an expert at the German Forum For Inheritance Law,
if, for example, a man bequeaths a property with a value of EUR700,000 to his
wife, she will pay EUR28,500 more tax under the new law. On the other hand,
a small house owned by grandma will be inherited tax free by relatives.
Distant relatives such as brothers and sisters, nieces and nephews and life-long
partners will also be disadvantaged, obliged under the amended law to give a
greater part of their inheritance to the treasury. Indeed, if they inherit property,
in future they too will be required to pay tax on 100% of the property value.
Regarding the inheritance of a business or company, this will remain tax free
provided that jobs are held open for a period of ten years and that the company
capital is not withdrawn for 15 years.
Despite five hours of consultation on October 9, the working group failed to
come to a final agreement, adjourning the discussions until this week. Major
areas still to be clarified and agreed upon are issues concerning inheritance
tax on property used solely for private residence and the holding period to
be imposed on companies.
The government aims to bring the reform into effect in the first half of next
year.
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