Giving the Business to Your Children Before the Inheritance Tax Ruling: Options and Safeguards

Germany's Federal Constitutional Court hears the inheritance tax cases on 12 and 13 October 2026. Owners who want to hand the business to their children therefore need neither to rush the gift nor to postpone it: until a ruling and a response from the legislature, today's law applies, with 85 or 100 per cent relief. Whether a gift before the ruling is wise depends less on the court date than on your business, your family and whether the successor is ready.

How we prepare a business succession within the family or to outside buyers is set out on our services page.

What the court is examining and which outcomes are conceivable is covered in inheritance tax before the Federal Constitutional Court. This article deals with the decision behind it: gift, wait or hand over another way. It is an overview, not tax advice.

What speaks for a gift before the ruling – and what against?

Law firms disagree: the range runs from "transfer soon" to "do not act only because of the date". None of the published commentaries offers a blanket recommendation.

For a gift now	Against a gift only because of the ruling
The tax arises when the gift is executed (§ 9 ErbStG) and is calculated under the law of that date.	Holding-period and payroll rules of five or seven years bind you and your successor.
In the business sphere, several commentaries expect tightening rather than relief.	The outcome is open; a ruling in favour of the relief is also conceivable.
The window in which a transfer can take place under today's law is getting shorter.	By handing over you give up influence; a way back takes time and can affect the relief.
Allowances can be used several times only in ten-year steps; an early start helps.	The family company discount under § 13a(9) ErbStG is no longer attainable for a gift now (see below).

The firm kfk calls the reflex "bring it forward" too short-sighted, but considers transfers completed before the ruling to be on legally firmer ground than later ones. Heuking advises against acting only because of the date, but suggests implementing an already planned handover promptly. Ecovis recommends waiting until it is clear whether a declaration of incompatibility with a transition period is issued. This range shows: there is no standard route.

How large is the retroactivity risk?

A risk exists, but it is narrowly defined: tightening may apply to arrangements from the day of the ruling; for earlier gifts that is not documented.

In its judgment of 17.12.2014 (1 BvL 21/12) the court ordered continued application of the old law until 30.06.2016. According to several commentaries it also saw no protection of legitimate expectations against a retroactive new rule that reaches back to the day of the judgment. This was aimed at "excessive exploitation". What counts as excessive has still not been defined.

The actual reform turned out differently in 2016. The act adapting the law was promulgated on 09.11.2016 and applied to acquisitions with tax arising after 30.06.2016 (§ 37(12) ErbStG). On 20.11.2025 the Federal Fiscal Court (II R 7/23) confirmed that this retroactivity was permissible for gifts between 30.06. and 09.11.2016. Legitimate expectations ended at the latest with the Bundestag resolution of 24.06.2016. Political concepts alone are not enough for retroactivity; a resolution of the legislative body is required.

For 2026 this suggests, cautiously: what to watch is the day of the ruling and a later legislative resolution, not the court hearing on 12 or 13 October. Whether a gift made before the hearing would later be treated as "excessive" is not documented.

Which safeguards exist?

A sensible contract framework allows unwinding without a tax consequence. The key provision is § 29(1) no. 1 ErbStG.

Instrument	Effect	Points to note
Right of reclaim (§ 29(1) no. 1 ErbStG)	The tax lapses retroactively to the extent the gift has to be returned because of a right of reclaim.	A right of reclaim, statutory or contractual, and actual return are needed. Until then the donee is treated for tax purposes like a usufructuary.
Reservation of revocation on a change of law	As early as 2012, commentaries recommended revocation if the new law turns out more favourable.	Usual grounds for reversion such as the donee's insolvency or divorce are, according to the literature, mostly unsuitable as a tax trigger. An express revocation is clearer.
Tax clause	Adjustment of the contract if the actual tax deviates considerably from the one calculated in advance.	Thinly documented in law; few decisions. The calculation must be recorded before the contract is signed.
Reservation of usufruct	Income and often voting rights stay with the transferor.	The capital value reduces the taxable acquisition. How a usufruct affects the relief has to be clarified case by case.

It is not documented how a later reversion of the gift affects holding periods already running and the relief. This question belongs, before signing, with your tax advisor and notary.

What the relief requires

The relief is not free: whoever wants to keep it commits for five or seven years.

	Standard relief	Optional relief
Relief	85 %	100 %
Payroll period	5 years, minimum payroll total 400 %	7 years, minimum payroll total 700 %
Holding period	5 years	7 years
Non-operating assets	below 90 %; 10 % harmless	at most 20 %

For businesses with up to five employees the payroll rule falls away; for six to 15 employees staggered minimum payroll totals apply. Excess withdrawals of more than 150,000 euros over contributions and profits lead to subsequent taxation. For acquisitions above 26 million euros the relief tapers off or requires a needs test under § 28a ErbStG. The allowance per child is 400,000 euros and can be used again after ten years; acquisitions within that period are aggregated (§ 14 ErbStG).

The family company discount of up to 30 per cent (§ 13a(9) ErbStG) requires articles of association rules on withdrawals, share dispositions and compensation. They must exist two years before the tax arises and be observed for 20 years afterwards. Whoever does not have them yet cannot reach the discount for a gift this autumn. For later steps it is worth adjusting the articles now.

What is the political situation?

There is no draft bill, only concepts and statements. The SPD concept "FairErben" of January 2026 provides a one-off lifetime allowance of one million euros and a business allowance of five million euros; the relief would be abolished, and tax on business assets could be deferred for up to 20 years. CDU and CSU reject the concept. A paper by the CDA labour wing that became known on 29.09.2026 would limit privileges to assets necessary for operations; the Economic Council considers a debate before the ruling pointless. Finance Minister Klingbeil refers to the ruling on inheritance tax.

Realistically, politics is waiting for Karlsruhe. No reform is to be expected before the ruling.

Gift, inherit or sell?

Tax is one factor, not the basic question. What matters is whether someone in the family wants to and can run the business and whether the financing holds. A gift for purely tax reasons does not solve a leadership problem.

If no successor emerges, selling to an outside buyer is the alternative. Income tax on the capital gain then replaces gift tax; the calculation is shown in our overview of tax changes in 2027 for business sellers. How gift, inheritance and sale compare for tax purposes is covered in business succession and tax.

What to prepare now

Preparation is useful in every scenario. Five steps pay off regardless of the ruling:

First: know the value. The simplified income-value method and an appraisal under IDW S 1 often lead to different values. A robust company valuation shows how much tax is at stake at all.

Second: check non-operating assets. Let property, securities and large cash balances shift the ratio.

Third: adjust the articles. Withdrawal, disposal and compensation rules lay the basis for the family company discount in later steps.

Fourth: assess the successor. Suitability, willingness and financing decide whether the holding and payroll periods can be met.

Fifth: involve notary and tax advisor early. A transfer that could be implemented within a few weeks is better prepared than one that arises under time pressure.

Does this also apply in Austria?

No. Austria has levied no inheritance and gift tax since 01.08.2008. For Austrian handovers, real estate transfer tax on property and the design of the transfer contracts count. German-resident heirs or donees can nevertheless be subject to German inheritance tax, even on Austrian assets.

FAQ

Should I transfer my business to my children quickly now?

Not only because of the court date. If the handover is planned anyway and the successor is ready, there is much to be said for a well-prepared implementation, secured by a right of reclaim and a tax clause. A gift only out of fear of the ruling is rarely a good reason.

Does today's law apply until the ruling?

Yes. Until the court decides and the legislature responds, §§ 13a and 13b ErbStG apply unchanged. The risk lies with arrangements from the day of the ruling, not before.

Can a new rule also affect businesses given away before the ruling?

That is not documented. In 2016 the reform applied retroactively to 01.07.2016, that is to the period between the expiry of the deadline and promulgation. The Federal Fiscal Court held that permissible on 20.11.2025. In 2014 the court saw no protection of legitimate expectations for excessive exploitation from the day of the judgment.

How do I secure a gift?

With a right of reclaim, which under § 29(1) no. 1 ErbStG causes the tax to lapse, as well as a tax clause and possibly a reservation of usufruct. Whether and in which combination this fits is decided case by case by tax advisor and notary.

Can I still use the family company discount?

Not for a gift this autumn, because the articles rules must exist two years before the tax arises. For later transfers the articles can be prepared now.

What about Austria?

Austria has no inheritance or gift tax. The topic is relevant mainly where heirs or donees are resident in Germany.

Sources: Federal Constitutional Court, press release no. 49/2026; BVerfG, judgment of 17.12.2014, 1 BvL 21/12; Federal Fiscal Court, judgment of 20.11.2025, II R 7/23, as reported by Ebner Stolz; §§ 9, 13a, 13b, 14, 16, 28a, 29, 37 ErbStG (gesetze-im-internet.de, dejure.org); kfk-partner, inheritance tax before the BVerfG (03.08.2026); Heuking, inheritance tax before the Federal Constitutional Court (05.10.2026); Ecovis (21.04.2026); Forvis Mazars, Board Briefing; SPD concept "FairErben" (January 2026), as reported by ESCHE Schümann Commichau. As of 08.10.2026. Overview, not legal or tax advice.

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