Is a reform of inheritance and gift tax needed? This currently controversial political question could soon be answered by the announced decision of the Federal Constitutional Court on the constitutional complaint pending before it (case no. 1 BvR 804/22). On 13 October 2026, the oral hearing will take place on whether the inheritance and gift tax privileges granted for the transfer of business assets are compatible with the German Basic Law. The Federal Constitutional Court’s decision is therefore expected in the near future.
The currently applicable rules on business asset relief under Sections 13a et seq. and 28a of the German Inheritance and Gift Tax Act (ErbStG) are once again under review. As part of the pending constitutional complaint, the court must decide whether recipients of private assets are placed at an unreasonable disadvantage compared with recipients of business assets. Under the current provisions of the German Inheritance and Gift Tax Act, business assets are fully or largely exempt from taxation if certain conditions are met.
Even if the Federal Constitutional Court were to classify individual provisions of the current inheritance and gift tax law as constitutional, a fundamental reform initiated by the legislator is to be expected. This is because statements are increasingly being made within the “Grand Coalition” that, irrespective of the outcome of the constitutional complaint, an “amendment” to the exemption rules for business assets is “necessary”. Based on experience, this usually means a tightening or even the complete abolition of the exemption rules for business assets.
If the Federal Constitutional Court once again finds individual provisions of the German Inheritance and Gift Tax Act to be unconstitutional and obliges the legislator to amend the current rules – or if, independently of this, the legislator’s willingness to “amend” inheritance and gift tax law prevails – the transfer of business assets is likely to be significantly less privileged in the future or may no longer be privileged at all.
It is highly likely that special tax relief for housing companies and the application of the relief needs test under Section 28a ErbStG (tax exemption for large acquisitions), particularly for foundations in Germany and abroad, will be abolished.
Anyone wishing to secure the currently favourable inheritance tax rules and avoid high future tax burdens when transferring companies should address this issue intensively without delay and implement suitable tax-efficient concepts in good time before a comprehensive reform enters into force. Time is running out: the Federal Constitutional Court’s decision is expected soon – entrepreneurs should therefore act quickly.
We would be pleased to support you in developing a succession concept, valuing your company and reviewing whether the requirements for business asset relief under Sections 13a, 13b and 13c ErbStG as well as Section 28a ErbStG are met, using our valuation tool “BEST”, and in the subsequent implementation.
Use the remaining window of opportunity to assess structuring options at an early stage, reduce tax risks and implement a sustainable succession solution in good time. Please feel free to contact us.
