SPD Inheritance Tax Reform 2026: What the FairErben Proposal Means for Business Succession

The SPD inheritance tax reform "FairErben," presented on January 13, 2026, would fundamentally change the taxation of business transfers. The proposal aims to largely abolish the existing exemptions for business assets and replace them with a flat allowance of 5 million euros. For the approximately 186,000 family businesses that, according to IfM Bonn, are seeking successors between 2026 and 2030, this would have significant consequences—both for intra-family successions and for business sales to external buyers. Empirical studies present a nuanced picture: while owner-managed companies offer long-term stability, private equity takeovers can bring productivity gains—but also increase the risk of insolvency.

The current system allows nearly tax-free transfers

German inheritance tax law currently provides generous reliefs for business heirs under §§ 13a and 13b ErbStG. Under the standard exemption, 85 percent of business assets are tax-exempt if the heir continues the business for at least five years and maintains the payroll at 400 percent of the initial value. The option exemption even allows full tax exemption with a seven-year holding period and preservation of 700 percent of the payroll.

For business assets exceeding 26 million euros, a tapering model applies that gradually reduces the exemption discount. Above 90 million euros, heirs can still obtain full exemption through the exemption necessity review if they prove that their private assets are insufficient to pay the tax.

The impact is substantial: according to the Federal Subsidy Report, the annual tax loss due to business asset exemptions amounts to approximately 8.8 billion euros. In 2024, 45 cases of exemption necessity review resulted in only 182 million euros being paid on a tax value of 3.5 billion euros—an effective tax rate of just 1.5 percent.

The SPD proposal "FairErben" in detail

The SPD reform would radically simplify the system while significantly tightening it. The central change concerns business assets: instead of the previous percentage-based exemptions, there would only be a uniform allowance of 5 million euros. The standard exemption (85 percent), the option exemption (100 percent), and the exemption necessity review would be eliminated without replacement.

Element	Current Law	SPD Proposal
Business asset exemption	85% / 100%	Allowance: €5 million
Necessity review (>€26 million)	Full exemption possible	Abolished
Deferral option	Limited	Up to 20 years
Child allowance	€400,000 every 10 years	€900,000 lifetime (family)

For private assets, the proposal provides a lifetime allowance of 900,000 euros for the entire family, replacing the previous allowance of 400,000 euros per child renewable every ten years. The tax exemption for owner-occupied family homes remains intact.

As compensation for the higher tax burden, an extended deferral rule of up to 20 years would be introduced, provided jobs are preserved. This addresses the central liquidity issue: company value is tied up in machinery, buildings, and patents—not in available cash.

Calculation examples illustrate the differences in tax burden

The concrete effects vary significantly depending on the company value. A comparison between current law and the SPD proposal for transfer to a child (tax class I):

Company Value	Current (Option Exemption)	Current (Standard Exemption)	SPD Proposal (Estimated)
€5 million	€0	~€69,000	€0
€10 million	€0	~€290,000	~€1.2 million
€20 million	€0	~€855,000	~€3.9 million
€50 million	€0	~€2.8 million	~€12.3 million

According to IW Cologne, about 44,000 larger family businesses with more than 10 million euros in revenue would be affected by the reform—representing 55 percent of this segment. Another issue identified by the institute concerns valuation methodology: the simplified earnings value method systematically overestimates company values by 53 to 59 percent, as the capitalization rate of 5.49 percent does not reflect the actual cost of equity of 8-9 percent.

Intra-family succession versus sale: A tax comparison

The decision between intra-family succession and business sale has significant tax implications, which would shift under the SPD reform.

In the case of a sale by natural persons, the capital gain is subject to the personal income tax rate of up to 45 percent. GmbH shares over one percent benefit from the partial income procedure, where only 60 percent of the gain is taxed. Through a holding structure, the effective tax rate can be reduced to about 1.5 percent (§ 8b KStG).

For a capital gain of 5 million euros, the tax picture is as follows:

Sole proprietor (45% tax rate): ~€2.25 million tax
GmbH shares private individual (partial income): ~€1.35 million tax
Via holding company: ~€75,000 tax
Inheritance to child (current, option exemption): €0 tax

Under the SPD reform, inheritance to a child with a company value of 5 million euros would still remain tax-free (allowance limit), but above this threshold, the calculus clearly shifts in favor of a sale via holding structures.

The succession gap worsens regardless of tax reforms

The German economy faces a demographic wave of succession. According to the KfW Succession Monitoring 2024, around 215,000 SMEs plan succession by the end of 2025, while simultaneously 231,000 SMEs consider closure. The average age of business owners has risen from 45 years (2003) to 54 years (2024); more than half of all SME owners are now 55 years or older.

The most serious problem, however, is the succession gap: for about 100,000 companies seeking successors annually, there are only around 45,000 interested founders—a ratio of 3:1. In Baden-Württemberg, this ratio is even 5:1. The DIHK recorded a record 8,276 advisory sessions on business succession in 2024—a 22 percent increase over the previous year.

Preferred types of succession are distributed as follows:

Intra-family succession: 51 percent (down from 57% during the pandemic)
External buyers: 41 percent
Employee takeover: 30 percent

What research says about owner-managed versus PE-led companies

Empirical research on performance differences between family businesses and private equity-led companies presents a nuanced picture with partly contradictory findings.

Family businesses show slight performance advantages: A meta-analysis by Wagner, Block, Miller, and Schwens (2015) in the Journal of Family Business Strategy examined 380 primary studies from 41 countries. The result: family businesses exhibit a statistically significant but economically weak outperformance compared to non-family businesses. In 61 percent of the studies, family businesses performed better. The effect is stronger for the ROA metric than for ROE and more pronounced in larger and publicly listed companies.

Private equity increases productivity but with side effects: The most comprehensive study on PE buyouts by Davis, Haltiwanger, Handley, Lipsius, Lerner, and Miranda (2019/2024), published in the American Economic Review, analyzed 9,800 PE acquisitions between 1980 and 2013. Labor productivity at target companies increased by 7.6 to 8 percent within two years. However, employment effects varied greatly depending on deal type:

Deal Type	Employment Effect (2 years)
Private-to-Private Buyouts	+15% employment
Public-to-Private Buyouts	-12% employment
Overall Average	-1.8 percentage points (statistically insignificant)

A concerning finding relates to insolvency risk: Ayash and Rastad (2021) found that leveraged buyouts increase the bankruptcy risk of target companies by about 18 percent. Data from the Private Equity Stakeholder Project show that PE firms in the US accounted for 56 percent of the largest insolvencies (liabilities over $500 million) in 2024, although they represent only 6.5 percent of the economy.

Innovation remains intact under PE ownership: Lerner, Sørensen, and Strömberg (2011) examined 495 buyout transactions with patent activity. Their finding: there is no evidence of a decline in patenting activity after PE takeovers. In fact, patents are cited more frequently post-buyout, indicating higher economic relevance. Research focuses more on core competency areas.

The German Mittelstand in European comparison

Germany has one of the highest inheritance tax burdens on business transfers worldwide. A ZEW study for the Stiftung Familienunternehmen (2024) comparing 33 countries found:

For transfers to the spouse: Germany has the highest tax burden
For transfers to children: Germany ranks third
14 of the 33 analyzed countries levy no inheritance tax
12 countries fully exempt spouses and children

Countries without inheritance tax include Austria (abolished 2008), Sweden (abolished 2004), Estonia, Slovakia, Latvia, and several Eastern European states. Switzerland (Canton Zurich) levies no inheritance tax on transfers to children.

Family businesses form the backbone of the German economy: according to current ZEW data, 88 percent of all private companies are family-run, employing 18.3 million people (58 percent of private sector employment) and generating 46 percent of revenue. Their crisis resilience is remarkable: large family businesses (500+ employees) have a closure rate of only 0.4 percent, compared to 0.9 percent for non-family businesses.

Political assessment and implementation likelihood

The SPD reform, as proposed, is politically unfeasible. Federal Chancellor Merz (CDU) explicitly rejected the proposal at the New Year's reception in January 2026 and urged the government to await the Federal Constitutional Court's ruling first. The CSU called the plans "anti-performance."

The decisive factor is a pending case before the Federal Constitutional Court (Az. 1 BvR 804/22), which is reviewing whether the preferential treatment of business assets violates the equality principle of the Basic Law. A decision is expected in the first half of 2026. Already in 2014, the court declared the then inheritance tax rules unconstitutional; the current legislation was enacted under time pressure in 2016.

The Council of Experts recommended in November 2025:

Introduction of a graduated lifetime allowance
Significant reduction of exemption discounts under 26 million euros
Abolition or substantial restriction of the exemption necessity review
Generous deferral options to secure liquidity
Mostly a minimum taxation of 15 percent for business transfers

Strategic options for business owners and buyers

For business owners, several strategic considerations arise given the uncertain legal situation:

Accelerating succession planning may be sensible to transfer under the current regime. However, this carries the risk that a constitutional court decision could trigger retroactive changes. The extended deferral rule of the SPD proposal (up to 20 years) could alleviate liquidity issues under a higher tax burden.

Structuring via holding companies for potential sales remains a tax-attractive option. Selling through a corporation reduces the effective tax burden to about 1.5 percent, which can be more favorable than a taxed inheritance at high company values.

Lifetime gifts using the ten-year renewable allowances could become less attractive due to the shift to lifetime allowances. The previous strategy of gradual transfer over several decades would thus be eliminated.

For potential buyers and successors, the current situation means that the supply of businesses for sale is likely to increase—both for demographic reasons and due to a possible tax reform. The succession gap (ratio 3:1) creates a buyer’s market with negotiation leverage on valuations.

Impact on the M&A market for SMEs

A higher inheritance tax burden would affect the M&A market for medium-sized companies on several levels:

The supply pressure increases: If intra-family successions become less attractive tax-wise, more entrepreneurs are likely to consider selling. DIHK statistics already show a mismatch of nearly 10,000 companies seeking succession to only about 4,000 interested buyers in IHK consultations.

Valuation shifts are likely: Academic research shows PE buyers can achieve productivity gains of 7-10 percent. This justifies higher purchase prices that intra-family successors may not be able to pay due to lower restructuring capacity.

Financing structures will need to adapt. Deferral arrangements of up to 20 years could enable hybrid models where family heirs sell parts of the company to external investors to finance tax payments.

Conclusion: Planning security remains the main challenge

The SPD inheritance tax reform "FairErben" marks a fundamental paradigm shift from privileging business continuity toward greater equal treatment of business and private assets. While political implementation in the proposed form is unlikely, the pending constitutional court ruling will in any case create pressure to act.

Empirical evidence shows no clear picture: family businesses offer long-term stability and crisis resilience, PE takeovers can bring productivity gains but increase insolvency risk. For the 186,000 companies seeking successors by 2030, the biggest challenge is not primarily the tax burden but finding suitable successors in a market with a 3:1 supply-demand ratio.

Entrepreneurs should not base their succession planning solely on tax considerations but on which succession solution best ensures the company’s long-term viability. The coming months will reveal the scope the constitutional framework actually allows the legislature.