What private clients can already expect and why the subject of business and wealth succession should be looked at now

The current tax situation is challenging

The current tax policy situation for private clients is challenging. Germany has one of the most complex tax systems in the world and private clients have a comparatively high tax burden. At the same time, Germany as a place to do business has lost a considerable amount of attractiveness to entrepreneurs and foreign investors.

In our practice, we are observing that due to this situation, the topic "global mobility" is becoming more and more important, with wealth being relocated abroad more frequently.

Both the CDU/CSU and the SPD are aware of this economic policy situation. There is therefore basically the hope that a way will be found out of this "location crisis".

Since the tax policies of these two parties appear to be almost diametrically opposed, the coalition negotiations will be tense, and the final result will be hard to predict.

_{Note: the Federal Constitutional Court (Bundesverfassungsgericht) has announced that it will give its judgment on the constitutionality of the solidarity surcharge on 26 March. This judgment could have considerable impact on the current negotiations.}

Higher private tax liability, tax relief for businesses

It is apparent that more tax will be charged on high income and high-value wealth in particular, while businesses could receive tax relief. It remains to be seen exactly how this relief will be implemented. In light of the current global tax competition, particularly regarding the current events in the USA and Germany’s economic situation, it cannot be ruled out that both fixed tax reductions and investment premiums will be considered. 

On the positive side, it should be emphasised that the parties appear to be in agreement on the necessity of tax equality between corporations and partnerships, something that points to potential harmonisation (and which would be good for the tax system).

Abolishing the “speculation period” (Spekulationsfrist) on real estate 

The much-discussed speculation period for real estate will probably come to an end in this legislature period. Prominent voices in the tax literature are advocating this in particular. 

Changes to inheritance and gift tax 

It already seems set that there will be changes to inheritance and gift tax, particularly regarding the exemption of business assets. It remains to be seen exactly how this will be structured.

In the context of the negotiations, it is surely significant that the Five Sages (Wirtschaftsweisen)  are pointing out that exempting business assets from tax is not to be recommended, economically speaking.

It should also be significant that the constitutionality of not including business assets is now (again) coming under scrutiny. 

Changes to capital gains tax not likely 

If Germany taxed capital gains at the progressive income tax rate, it would probably no longer be competitive in the international competition for capital, and capital flight would continue to increase, which in turn would have a considerable impact on the economy. In light of the current economic situation, it therefore seems unlikely that there will be changes to tax on income from capital in favour of the progressive income tax rate.  What’s more, with the state pension being as meagre as it is, it would punish those who have built up private pensions based on capital investments. 

Introduction of a wealth tax unlikely 

Although reviving wealth tax is constitutionally possible, the administrative burden involved in regularly revaluing assets would be considerable and would potentially not be at all proportionate to the potential tax revenues. This would have to be accompanied by some kind of compensation in inheritance and gift tax in order to avoid an effective double taxation of assets, which would be constitutionally hard to maintain. 

Introduction of global minimum tax unlikely 

In light of the withdrawal from global minimum tax already announced by the new US government, the introduction of a global minimum tax for the super-rich appears to be a long way off. It’s also questionable how it would be integrated into our tax system without considerable administrative burden. 

Opening up the Transparency Register unlikely 

Making the Transparency Register accessible to the public seems to be unlikely given the judgments of the European Court of Justice to the contrary.

Light on the horizon – reduction in bureaucracy 

A positive point to emphasise is that both parties advocate reducing tax bureaucracy.  However, this is potentially countered by some of the SPD’s plans, such as disclosure duties for domestic tax arrangements and reinforcing the combat against tax evasion.

Look into business and wealth succession now!

It is urgently recommended considering the subject of business and wealth succession to take advantage of the current rules that exempt business assets. Further specific recommendations for action can probably be made after the coalition negotiations have concluded. 

We will take pleasure in advising you on the best way to protect your assets and structuring them so they are secure for the future.