German Federal Constitutional Court reviews inheritance tax rules

The First Senate of the German Federal Constitutional Court is reviewing the constitutionality of inheritance and gift tax regulations, specifically regarding tax relief for business assets. The proceedings, which included hearings in October 2026, focus on whether current exemptions violate the principle of equality under Article 3 of the Basic Law.

A central point of contention is the perceived disadvantage faced by private heirs compared to those receiving business assets. The court is examining several key provisions, including relief allowances, asset demarcation rules, and the tapering model for large estates. Under current laws, business heirs can inherit assets largely tax-free, with exemptions reaching 85 percent or even 100 percent depending on the duration of business continuity and payroll requirements.

A ruling is expected in 2027. Legal experts suggest the outcome could necessitate a fundamental structural reform of the tax system, potentially moving toward a model based on consistent market value orientation and the equal treatment of all asset types, such as bank balances, real estate, and corporate shares.