Germany's Top Court to Examine Inheritance Tax Breaks for Business Heirs

Germany's Federal Constitutional Court is set to examine whether the country's preferential inheritance tax treatment for business heirs is constitutional. The case highlights stark inequalities in Germany's wealth transfer system, with data revealing that multi-billion-euro business inheritances effectively pay almost no tax.

Germany transfers between 300 and 400 billion euros in inherited wealth per generation. The richest 10% of inheritors receive approximately half of all inherited wealth, and three out of four German billionaires inherited rather than earned their fortunes.

Between 2021 and 2023, business inheritances worth multiple millions or billions of euros paid an average effective tax rate of just 2.9%. In 2023 alone, that figure dropped to 0.1% — a near-complete exemption from the tax that applies to ordinary citizens inheriting real estate or financial assets.

The disparity is explained by generous legal provisions: businesses with a value under 26 million euros can have inheritance tax largely waived if the heir continues running the business for several years and preserves jobs. For larger inheritances above 26 million euros, a "hardship exemption" mechanism exists that can further reduce or eliminate the tax burden.

By contrast, a plaintiff in the current case, Heinrich Fischwasser, inherited securities and real estate worth approximately 250,000 euros from his aunt and — as a nephew rather than a direct descendant — must pay around 47,000 euros in inheritance tax, a rate of roughly 20%, with no access to business exemptions.

Julia Jirmann from the Tax Justice Network commented: "We have as many billionaire heirs as almost any other country." The constitutional court last reviewed inheritance tax provisions in 2006 and 2014, and critics argue the system has become increasingly skewed toward protecting the super-wealthy.