Inheritance Tax Injustice: Higher Taxes for Those Who Inherit Less

Anyone who inherits a property can count themselves lucky. But there is also a fly in the ointment: the inheritance tax that is then due is unfair. Those who have less are taxed more.

Berlin – No matter how it is structured, inheritance tax is a controversial matter. Depending on how much wealth a person inherits, very high tax rates of up to 50 percent can be due. Actually, those who inherit a particularly large amount should also pay particularly high taxes. If you have less, you pay less inheritance tax. But that’s not how it works when it comes to taxing real estate heirs, on the contrary: those who have less have to pay higher taxes – while the super-rich don’t have to pay anything.

No tax liability for housing companies with 300 units or more

The reason for this injustice lies in the fact that the tax authorities assume a simple calculation: Anyone who inherits 300 or more apartments is considered a “commercial business” – and is exempt from tax liability according to the Inheritance Tax Act (§13b). Anyone who inherits 299 or fewer apartments does not count as a housing company and has to pay for it. The tax rate then depends on the value of the inherited property.

The heirs of real estate in cities like Berlin or Munich can suddenly stop laughing. Because the values ​​of the land have increased extremely in recent years. For example, a legacy from the region around Munich reports daily Newsthat one million euros in inheritance tax was then due for the 13 inherited apartments. “Of course, we didn’t have the money that the tax office called up within six weeks in our account,” the person concerned continues. He had to take out a loan.

The law therefore favors people who inherit a lot of real estate at once – and are therefore likely to be among the super-rich in Germany. A court has already decided that this interpretation of the Inheritance Tax Act is unfair. Then why doesn’t anything change?

Inheritance Tax Act: Judgment of the Federal Fiscal Court was ignored

The verdict was made in October 2017 by the responsible Federal Fiscal Court:

So: It is not the number of apartments that should determine whether it is a housing company or not. The decisive factor for the judges was whether additional services were provided. As examples they give cleaning of the apartments or guarding of the building. Services that would be valid for dormitories, for example, but not with the usual large landlords.

Despite the judgment of the Federal Fiscal Court, nothing has changed. Because following the case law, the financial authorities of the federal states, in consultation with the then Finance Minister Olaf Scholz (SPD), decided on a so-called non-application decree. So a decree that says: We don’t stick to it. And in 2019 new inheritance tax guidelines were passed, which also adhere to the previous procedure.

In the end, the tenants pay the costs

Politicians are sticking to the scenario described at the beginning: Those who have less have to pay high inheritance tax, those who have more are exempt. For many smaller landlords, this means that when in doubt, they have to sell their inherited assets because they cannot pay the inheritance tax. Or they take out a loan to pay off the tax – which then has to be passed on to the tenants. It is therefore also the tenants who have to bear the burden.

Rubriklistenbild: © Schoening/Imago