Inheritance Tax Before the Federal Constitutional Court: What It Means for Business Successors

Germany's Federal Constitutional Court hears the inheritance tax cases on 12 and 13 October 2026 – and on the second day it deals directly with the relief for business assets under §§ 13a and 13b ErbStG (the German Inheritance and Gift Tax Act). No ruling is expected before 2027. Until then the current law applies unchanged, including to transfers you are planning now. For owners preparing a handover to the family or a sale, that means: today's rules are known. Tomorrow's are not.

How we prepare a business succession – within the family or to an outside buyer – is set out on our services page. This article explains the two proceedings, the realistic outcomes and what owners can sensibly do before the ruling. It is an overview, not legal or tax advice.

The relief rules themselves are explained in our article on the Verschonungsregelung for business assets. Here the question is whether those rules will survive.

What exactly is the court hearing?

There are two separate proceedings before the First Senate: an abstract review brought by the Free State of Bavaria on valuation, allowances and tax rates, and a constitutional complaint against the relief for business assets.

	Proceeding 1	Proceeding 2
Case number	1 BvF 1/23	1 BvR 804/22
Hearing	Monday, 12.10.2026, 2 pm	Tuesday, 13.10.2026, 10 am
Applicant	Bavarian state government (abstract judicial review)	An heir of private assets (constitutional complaint)
Subject	Valuation of real estate (§ 12(3) ErbStG), personal allowances (§ 16(1) ErbStG), tax rates (§ 19(1) ErbStG)	Reliefs and valuation rules for business assets
Relevance for owners	indirect: allowances and rates apply to every transfer	direct: the core of the tax-free business handover

The first proceeding concerns every heir. Bavaria considers the allowances, unchanged since 2009, no longer adequate given rising property values. Commentators also point to the question of whether the federal level must regulate uniformly or whether the states should get more room.

The second proceeding matters more for business owners. The complainant inherited only private assets from his aunt, a securities account and real estate. According to the court's press release, he argues that the reliefs and valuation rules for business assets disadvantage him because they do not apply to his acquisition.

At its core, one question is on the table: how much tax exemption for business heirs is compatible with the principle of equal treatment?

What is at stake for successors?

Under current law, 85 per cent (standard relief) or 100 per cent (optional relief) of qualifying business assets pass free of tax – subject to conditions that run for five or seven years. This is exactly what the court is reviewing.

Element	Current law (October 2026)
Standard relief	85 % exempt, holding period 5 years, payroll rule
Optional relief	100 % exempt, holding period 7 years, non-operating assets at most 20 %
Large acquisitions	from 26 million euros of qualifying assets: tapering model or needs test (§ 28a ErbStG)
Family company discount	up to 30 % where the articles restrict distributions and transfers (§ 13a(9) ErbStG)
Allowance per child	400,000 euros per parent, every 10 years (§ 14 ErbStG)

If the relief disappears or is sharply restricted, the arithmetic of every family handover changes. A company that passes to the next generation practically tax-free today could trigger a tax bill that has to be paid out of the business.

This is not a theoretical scenario. It has happened twice.

Has the court struck down the relief before?

Yes. In 2006 and 2014 the Federal Constitutional Court objected to German inheritance tax law – in 2014 explicitly to the relief for business assets as it then stood.

In its judgment of 17.12.2014 (1 BvL 21/12), the First Senate held the relief admissible in principle but disproportionate in parts: too generous for large estates without a needs test, too broad on the payroll rule, too much non-operating property included. The legislature was given until 30.06.2016.

The reform came late. The law was only promulgated in November 2016 and applied retroactively to all acquisitions from 01.07.2016.

A second lesson from 2014 matters more today: the court made clear that the continued application of the old law does not protect excessive arrangements made from the day the judgment is pronounced. Anyone who rushes a transfer after a ruling cannot rely on the old law applying to them.

That leads to an uncomfortable truth. The relevant cut-off date may not be the date a reform takes effect. It may be the day of the judgment.

Which outcomes are realistic?

Three outcomes are conceivable: the law stands, the court demands amendments with a transition period, or individual rules become inapplicable immediately. The second is the most likely in line with 2006 and 2014 – that is the assessment of IGCP Capital Partners, not a forecast of the court.

Scenario	What it means	Consequence for your planning
1. Compatible with the Basic Law	Relief stays as it is	Political reform debate continues, without pressure from Karlsruhe
2. Incompatible, continued application with deadline	Old law applies until a new rule, legislature must reform	Transition phase; risk that arrangements from the judgment date are no longer protected
3. Incompatible without continued application	Individual rules no longer applicable at once	Immediate legal uncertainty for ongoing transfers

On timing: according to KPMG, four to five months typically pass between the oral hearing and the judgment. Observers do not expect a ruling in 2026. As a rough assumption, that points to the first half of 2027 – the court has not named a date.

What are the politicians planning?

There is no draft bill on inheritance tax. There is an SPD concept that would replace the relief, and CDU/CSU reject it.

In January 2026 the SPD presented its "FairErben" concept. According to specialist commentary, it provides a lifetime allowance of 1 million euros per recipient, an additional business allowance of 5 million euros, and would abolish today's standard and optional relief. Tax on business assets could be deferred over up to 20 years.

CDU and CSU reject the concept. The CSU even calls for lower inheritance tax and more say for the states.

Realistically, politics is waiting for Karlsruhe. The ruling will set the frame within which the coalition must find a solution.

What can owners sensibly do now?

Do not transfer in a hurry, but do the homework that helps in every scenario. Anyone who is planning a handover anyway should prepare it with their tax advisor and notary so that it could be implemented before a ruling.

First: know your company's value. The simplified income-value method of the German Valuation Act often produces higher values than an appraisal under IDW S 1. A robust value helps determine how much tax would arise at all. How valuations are made is shown on our company valuation page.

Second: check non-operating assets. The optional relief requires non-operating assets of at most 20 per cent. Let property, securities or large cash balances in the business can break the ratio.

Third: review the articles of association. The family company discount of up to 30 per cent requires restrictions on withdrawals, disposals and settlements that must exist two years before the transfer. Settling this now creates an option for 2028.

Fourth: protect transfers. For gifts made before a possible reform, specialist advisors recommend revocation and reclaim rights as well as tax clauses. Whether that fits your case belongs with your tax advisor and notary.

Fifth: use allowances in ten-year cycles. Starting early allows allowances to be used more than once.

Sixth: plan for liquidity. If tax becomes due in future, it has to be paid. Deferral under § 28 ErbStG helps only to a limited extent.

Does the case change the choice between handover and sale?

It changes the arithmetic, not the basic question. The basic question remains whether someone in the family wants to and can run the company.

One point is often overlooked. If you sell the company during your lifetime, qualifying business assets become sale proceeds in your private wealth. Those proceeds no longer enjoy relief for your heirs. A seller therefore pays income tax on the gain and later, possibly, inheritance tax on the proceeds.

Conversely, a family handover purely for tax reasons is rarely a good decision. If no successor is in sight, the relief only postpones the problem. The options are set out in our article on business succession and tax.

What else changes for sellers in 2027 – from the top tax rate to the cash payment cap – is summarised in our overview of tax changes in 2027 for business sellers.

Does this also apply in Austria?

No. Austria has levied no inheritance or gift tax since 01.08.2008. For Austrian handovers, real estate transfer tax on property, the structure of the transfer agreement and income tax on a sale are what matter. German-resident heirs or donees can, however, be subject to German inheritance tax even on Austrian assets.

FAQ

When does the Federal Constitutional Court hear the inheritance tax cases?

On 12.10.2026 at 2 pm (1 BvF 1/23, Bavaria's review of valuation, allowances and rates) and on 13.10.2026 at 10 am (1 BvR 804/22, relief for business assets). Both cases are before the First Senate.

When can a ruling be expected?

No date is known. Several months usually pass between hearing and judgment; observers expect the decision in 2027, not in 2026.

Does the current law apply until the ruling?

Yes. Until the court decides and the legislature responds, §§ 13a and 13b ErbStG apply unchanged. There is a risk for arrangements made after the judgment date, because in 2014 the court denied protection of legitimate expectations for excessive arrangements from the date of the judgment.

Should I give my company away quickly now?

A transfer made only out of fear of a ruling is not a good reason. Anyone planning a handover anyway should prepare it so that it can be implemented quickly and have it protected with revocation rights and tax clauses. The decision belongs with your tax advisor and notary.

What is the SPD's "FairErben" concept?

A reform concept from January 2026, not a draft bill: lifetime allowance of 1 million euros, an additional business allowance of 5 million euros, abolition of today's relief and deferral over up to 20 years. CDU and CSU reject it.

Does the case affect companies in Austria?

Not directly. Austria has no inheritance or gift tax. It becomes relevant where heirs or donees are resident in Germany.

Sources: Federal Constitutional Court, press release no. 49/2026 of 30.07.2026 (bundesverfassungsgericht.de); KPMG, BVerfG: oral hearings on inheritance tax scheduled (kpmg.com/de, July 2026); BVerfG, judgment of 17.12.2014, 1 BvL 21/12; Act adapting the Inheritance and Gift Tax Act to the case law of the Federal Constitutional Court of 04.11.2016; §§ 13a, 13b, 14, 16, 19, 28, 28a ErbStG (gesetze-im-internet.de); SPD concept "FairErben", January 2026, as reported by Haufe and Kleeberg. As of 08.10.2026. Overview, not legal or tax advice.

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