The new inheritance tax comes as a surprise to many, although the Federal Constitutional Court had already ruled on it in 2006. There are three reasons why the new regulation is fair and benefits society.
You don’t look anything in the mouth of a gift horse, but you still have to feed it. And that costs money. It is similar with inheritance and gifts: if the value of an inherited property exceeds a certain rate, you have to pay taxes on it. This exemption limit is 500,000 euros for spouses, 400,000 for children and 200,000 for grandchildren. This will not change, but the way the value of real estate is calculated will change.
From 2023, the current sales price will be used – and it will be significantly higher because the vast majority of properties have increased in value. Accordingly, heirs slide into a higher tax bracket, which can multiply the inheritance or gift tax. And many don’t even have five-digit sums on hand. Experts anticipate that houses will even have to be sold because heirs cannot pay the tax.
Ever since this trend became apparent, a fairness debate has flared up. This is not about the quarrel between rich and poor: This debate affects the middle of society. Basically, the idea isn’t crazy: Anyone who inherits a really large property has to pay taxes on it – based on the value of the house today. The government is currently implementing this requirement of the Federal Constitutional Court.
If the annual tax law goes through the deliberations and resolutions of the Bundestag and Bundesrat unchanged in this respect, it will make inheritance more expensive from January 2023, sometimes considerably. And receiving gifts too. Even if it annoys tens of those affected: The new taxation not only sounds logical, it is also fair – for three main reasons.
First, it should not be forgotten that there are no taxes if the inherited property is used for ten years. So if you want to spend your life in the inherited property, you don’t have to pay anything. A tax only applies if he simply does not need the house himself.
Or another case: if, for example, the husband who owns the property becomes very ill, he can give it to his wife without incurring any tax. The right of usufruct also allows real estate owners various options, for example to favor their children tax-free.
Second: The fact that real estate is not determined according to updated unit values from the 1930s, but close to the “common value” is not at all surprising. The judgment of the Federal Constitutional Court dates from 2006. However, many of those affected more or less relied on the fact that nothing decisive happened in this regard for years and expected this to continue.
Now things are getting serious with the adjusted earning power method and the supposed surprise is great. With an economics school subject that teaches important tax issues, there would probably be far fewer problems of this kind, but the general rule is: potential heirs have to deal with such important things in good time and prepare for them.
An inheritance is an unearned fortune. And it’s fair that you give something to society. Anyone who inherits a property that is currently worth 650,000 euros may be annoyed that he or she does not pay 11,000 euros, for example, but 37,000 euros. But is that too much of a good thing? If you own a house that was worth one million euros according to the old counting method and wanted to transfer it to a child, you could get by tax-free with the allowances and the usufruct.
One can argue here that society would have deserved more in such cases. Let’s assume that the property is worth a whopping 1.6 million from 2023, then the 19 percent taxes will amount to almost 120,000 euros. That sounds like a lot, but compared to the 1.6 million euros that have worked for the heir for years, it is justified.
Conversely, this means that anyone who, like the CDU and FDP, is now demanding that the allowances have to be increased is not making society fairer. Yes, 400,000 for inheriting children sounds like a lot of money and yet it isn’t when the value of a rather ordinary single-family house near a big city doubles in a few years. But for the reasons mentioned, a different regulation is required in order to obtain the best possible result. Because the Federal Constitutional Court did not aim for the state to earn as much money as possible, but rather for things to be done more fairly. Increasing the allowances is too general to help here.
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If there are cases of hardship, exceptions are needed, because life is complicated: In view of the acute housing shortage and the sustainability debate, it is necessary to prevent properties from being used optimally and tenants of the affected properties from being exposed to social hardship. And that’s exactly what can easily happen if real estate cannot be kept due to skyrocketing inheritance tax, experts warn – for example: If an heir cannot afford the tax and has to sell the property, the buyer – usually a large property developer – will do so after a renovation increase the rents and possibly piss off the old tenants.
Now many will cry out: Not more special locks in tax law! But it doesn’t depend on one or two more exceptions – the inheritance tax is a construct with countless special regulations. In addition, there are technological options, either now or in the near future, that will make the argument that the effort involved in examining individual cases too high is pointless. The army of tax officials would be enough if artificial intelligence (AI) and Co were used more consistently in public administration.
The article “Why it’s fair if real estate heirs pay more taxes” comes from WirtschaftsKurier.