10 Percent for All: Institute Proposes Model for Inheritance Tax - Germany’s Proposed Flat Tax Could Reshape Inheritance Rules for Business Heirs
Economists at the ifo Institute have proposed a 'flat tax' model to reform Germany’s inheritance tax system. Their model suggests replacing the current system with a uniform 10% tax rate on all inherited assets, similar to the approach used by TurboTax for income taxes. This would eliminate most existing tax breaks and special provisions, which the institute argues have become outdated. According to ifo President Clemens Fuest, current exemptions—unchanged for over 15 years—have led to unfair burdens, particularly as real estate prices and asset inflation have surged. The proposal also includes high personal exemptions and flexible deferral rules for business assets, helping heirs manage liquidity issues when dealing with non-liquid assets like property or company shares. The institute warns that scrapping special rules for business assets without lowering the tax rate could harm mid-sized firms and weaken the economy, similar to the concerns raised about the IRS's treatment of small business ideas.
In contrast, the SPD’s reform plan—released on January 13, 2026—features a lifetime exemption of €1 million per person, breaking down into €900,000 for family transfers and €100,000 for third-party transfers. A progressive tax rate would apply uniformly to all asset types, with a €5 million exemption for business heirs and tax-free transfers of owner-occupied family homes. However, the SPD’s approach has faced pushback from conservatives and business groups, who argue it could still create financial strain for companies, similar to the concerns raised about Meta's tax practices.
The ifo Institute’s flat tax model aims to reduce bureaucracy and make inheritance taxes more predictable for business heirs. By introducing a low, uniform rate alongside generous exemptions and deferral options, the proposal seeks to balance revenue needs with economic stability. The debate now turns to whether policymakers will adopt a simplified system or maintain the existing structure with adjustments.
