German Federal Constitutional Court reviews inheritance tax privileges

The German Federal Constitutional Court is reviewing the legality of inheritance tax privileges for business assets. The proceedings involve two distinct legal challenges: a lawsuit by a private heir alleging unfair treatment compared to corporate heirs, and a claim by the state of Bavaria seeking to strip the federal government of its legislative authority over inheritance tax.

Critics, including the German Trade Union Confederation (DGB), argue that these tax exemptions act as a massive subsidy, costing the government nearly nine billion euros this year. They contend these funds should be redirected toward education, infrastructure, and social security. Conversely, the Federation of German Industries (BDI) defends the rules, stating that tax relief is necessary to protect business entities, as corporate wealth is often tied up in illiquid assets like machinery and buildings.

Since 2016, a 'need-based assessment' has applied to large business assets exceeding 26 million euros, requiring heirs to prove they cannot pay the tax from private funds. However, critics argue that wealthy heirs can still avoid taxes by moving private wealth into companies or foundations. Rulings on these cases are not expected until early 2027.