Germany: Inheritance tax under pressure – constitutional review and political reform debate
Philipp Lucas
Germany
by Philipp Lucas
Germany’s inheritance tax regime for business assets is once again under intense scrutiny. A landmark decision by the Federal Constitutional Court (BVerfG) is expected in 2026 (Case 1 BvR 804/22). The Court itself has confirmed in its annual report published on 12 March 2026 that a decision is planned for this year, adding further urgency to the ongoing debate.
Status quo: broad privileges for business assets
Current German inheritance tax rules provide extensive relief for transfers of qualifying business assets. Under certain conditions, 85% of the value is exempt from taxation, and in some cases even a full (100%) exemption is possible.
As a result, the transfer of large business assets can currently take place almost tax-free. While these rules aim to protect jobs and ensure business continuity, they have long been criticised for creating significant disparities compared to the taxation of private wealth.
Current debate: increasing pressure for reform
The political debate on inheritance tax reform in Germany has intensified in recent years. Recent proposals, particularly from the Social Democrats (SPD) – one of the ruling parties, suggest a significant tightening of the current regime.
Key elements under discussion include:
Reducing or limiting existing tax exemptions;
Introducing stricter eligibility criteria;
Lowering thresholds for privileged treatment of business assets; and
Increasing the effective tax burden on large transfers.
The underlying policy objective is to reduce perceived inequalities and increase the contribution of large fortunes to public finances. This reflects a broader trend in the debate on wealth taxation in Germany.
BVerfG decision as potential turning point
The upcoming BVerfG decision will assess whether the current rules comply with the constitutional principle of equality. A finding of unconstitutionality is widely considered possible.
Based on past practice, the Court would likely not immediately invalidate the rules but instead grant the government a transition period to implement a revised framework. A similar approach was taken following the Court’s 2014 decision, which triggered the current regime.
Should the Court again find the rules unconstitutional, this will likely accelerate the ongoing political debate and significantly increase the probability of a more restrictive inheritance tax system in the near future.
Conclusion
Germany’s inheritance tax treatment of business assets stands at a crossroads. With both constitutional and political pressure building, the current regime may not remain stable for long. Taxpayers and advisors should closely monitor developments and reassess succession planning strategies accordingly.
The best time to plan for succession was yesterday – the second-best time is now.
XLNC member firm Bergemann Schönherr & PartnerMunich/Frankfurt, GermanyT: +49 89 540 465 100
Accounting, Audit, Legal, Tax
Philipp Lucas is a German tax advisor and certified specialist in international tax law. He advises companies and multinational groups on complex cross-border matters, and hosts the podcast Tax Me If You Can. Contact Philipp.
Bergemann Schönherr & Partner is an interdisciplinary firm specialising in tax, audit, and legal advisory. A key focus of the firm is compliance and structuring in highly regulated environments, and advising companies and multinational groups.
