BERLIN, Jan 13 (Reuters) - Germany's Social Democrats published plans on Tuesday to reform inheritance tax to improve fairness in Europe's biggest economy, putting the SPD on a collision course with its conservative coalition partner before regional elections this year.
Under the SPD plans for inheritance tax, currently subject to piecemeal rules now under Constitutional Court scrutiny, large estates would face higher tax bills while relief would be offered to smaller inheritances.
Chancellor Friedrich Merz's conservative bloc and the centre-left SPD agree on wanting to speed up tax relief to revitalise Germany's sluggish economy, but are at odds on how.
The row compounds tensions in the coalition and although neither side is threatening to ditch the alliance, it contributes to the image seen by many voters of a weak government that is slow in agreeing on much-needed policy.
The SPD, trailing the conservatives and far-right AfD by more than 10 points in most polls before five state votes this year, is pushing social equity as a key message and wants higher taxes for top earners to help fund other planned cuts.
Under the SPD plans, an allowance of about one million euros ($1.17 million) per heir and inherited parental homes would stay tax-free if the heir continues to live there.
"We want to ensure greater fairness,” said SPD deputy parliamentary group leader Wiebke Esdar.
Allowances of about five million euros are planned for companies in an effort to secure family businesses but people inheriting larger firms would face a bigger tax take.
The plans for companies are particularly unpopular with the conservative bloc led by Christian Democrats.
"The SPD's tax increase plans are a frontal attack on German family businesses and spell the end of peace in the coalition," Christian von Stetten, head of the conservatives' parliamentary group for small and medium-sized business, told the Bild daily.
Inheritance tax rules vary among European Union countries, reflecting different approaches to redistribution, but most members have some sort of levy on wealth transfer.
Revenues from inheritance and gift levies from state tax offices across Germany, where they are collected, totalled around 13.3 billion euros in 2024, Federal Statistics Office figures show.
($1 = 0.8570 euros)
(Reporting by Markus Wacket; additional reporting by Holger Hansen; writing by Madeline Chambers; editing by Mark Heinrich)
