# Federal Constitutional Court Hears Case on Inheritance Tax > The Federal Constitutional Court reviews inheritance tax, state powers and business asset relief under the ErbStG. Source: https://www.mtrlegal.com/en/federal-constitutional-court-hears-case-on-inheritance-tax/ · Language: en · Updated: 2026-10-21 --- **Update of 21 October 2026:** On 13 October 2026, the Bundesverfassungsgericht (BVerfG, Federal Constitutional Court) held a hearing in proceedings 1 BvR 804/22 on whether the current relief rules for business assets under the Erbschaftsteuer- und Schenkungsteuergesetz (ErbStG, German Inheritance Tax and Gift Tax Act) are compatible with [Art. 3 Abs. 1 GG (German Basic Law)](https://www.gesetze-im-internet.de/gg/art_3.html). The focus was in particular on the preferential treatment of large business assets, the needs-based relief test under § 28a ErbStG, and the question of whether acquirers of non-privileged private assets are thereby disadvantaged in breach of the principle of equality. ## Karlsruhe hears inheritance tax case over two days In October 2026, the Bundesverfassungsgericht dealt with fundamental issues of inheritance tax law over two consecutive days of hearings. The subject matter was, on the one hand, the [abstract judicial review of statutes](https://www.mtrlegal.com/wiki/abstrakte-normenkontrolle/) initiated by the Free State of Bavaria concerning the nationwide uniform structure of inheritance tax and, on the other hand, a constitutional complaint concerning the preferential treatment of business assets. Both proceedings concern different constitutional starting points, but are closely connected from a tax policy perspective. At their core, the issue is the extent to which the legislature may provide for differences between types of assets and regions in [inheritance and gift tax](https://www.mtrlegal.com/wiki/erbschaftsteuer/), and what limits arise in particular from the principle of equality. Based on the current status of the proceedings, decisions are not expected for several months; a decision still in 2026 is considered practically ruled out due to the usual time interval between the oral hearing and pronouncement. The renewed involvement of the Bundesverfassungsgericht forms part of a longer line of case law. Following decisions on inheritance tax in 1995, 2006 and 2014, this is the Court’s fourth fundamental examination of this area of taxation. ## Bavaria’s abstract judicial review proceedings on inheritance tax ### Dispute over nationwide uniform rules The application for judicial review filed by the Free State of Bavaria, with case number 1 BvF 1/23, is also pending before the Bundesverfassungsgericht. The hearing lasted around two and a half hours. The reporting judge in these proceedings is Justice of the Bundesverfassungsgericht Dr. Meßling. Bavaria objects to nationwide uniform rules on real estate valuation, tax allowances and tax rates. In Bavaria’s view, this nationwide uniform structure lacks the constitutionally required necessity within the meaning of Art. 72 Abs. 2 GG and Art. 105 Abs. 2 GG. With these proceedings, Bavaria is pursuing the objective of opening up scope for partial regionalisation of inheritance tax. By means of the application for judicial review (BVerfG 1 BvF 1/23), the Bavarian state government seeks clarification as to whether the Federation may regulate inheritance and gift tax in its current form at all. ### Bavaria’s arguments and reactions from the Länder Bavaria criticises in particular that the inheritance tax allowances have not been adjusted since 2009, even though real estate prices in particular have risen significantly since then. The Free State also points out that inheritance tax is a tax of the Länder, the revenue from which accrues entirely to the Länder. In the hearing, the Court appeared reserved towards the Bavarian submissions according to the impression gained there. No other federal state supported the application. North Rhine-Westphalia expressly opposed the application. An expert appointed by the Bundesverfassungsgericht also referred to foreign experience with regionalised inheritance taxes. According to this, such a structure could create incentives for competition for the lowest possible tax rates. This argument was recognisably opposed to stronger regionalisation during the hearing. ## Constitutional complaint on relief for business assets ### Subject matter of proceedings 1 BvR 804/22 On 13 October 2026, the oral hearing on the constitutional complaint with case number 1 BvR 804/22 followed. The hearing lasted almost six hours in total. In 2018, the complainant had inherited exclusively private assets from his aunt. The assets essentially consisted of a securities portfolio and real property with a total value of around EUR 250,000. This acquisition gave rise to inheritance tax of around EUR 47,000, i.e. approximately 20 percent. Had privileged business assets been acquired instead, relief of up to 100 percent might have been available in certain circumstances. The complainant sees this in particular as a violation of the general principle of equality under Art. 3 Abs. 1 GG. After remaining unsuccessful before the fiscal courts, the constitutional complaint is directed specifically against an order of the Bundesfinanzhof (BFH, Federal Fiscal Court) of 17 January 2022, case no. II B 49/21. Directly challenged are an inheritance tax assessment notice and the court decisions issued in this regard. Indirectly, in addition to several provisions of the Erbschaftsteuer- und Schenkungsteuergesetz, the proceedings are also directed against a provision of the Bewertungsgesetz (BewG, German Valuation Act). ### Standard of review of the Bundesverfassungsgericht The constitutional review focuses on §§ 13a, 13b, 13c and 28a ErbStG in the version created by the legislature in 2016 in response to the judgment of the Bundesverfassungsgericht of 17 December 2014, case no. 1 BvL 21/12. At that time, the Court had not ruled out preferential treatment for business assets in principle, but had objected to parts of the structure then in force. At the start of the hearing, the Presiding Justice of the First Senate, Court President Prof. Dr. Stephan Harbarth, made clear that the question of an even tax burden “affects many people’s sense of justice in our country in a particularly significant way” (translated meaning). At the same time, he expressly limited the subject of review to the question of whether the different treatment of acquirers of privileged and non-privileged assets is constitutionally justified. The Presiding Justice identified as key points of review, in particular, the requirements for relief specifically for large business assets and the question of the extent to which the challenged provisions are supported by the legislature’s objective. The hearing therefore did not concern a general political assessment of inheritance tax, but the constitutional viability of the statutory differentiation. ## Arguments in the oral hearing ### Broad-based hearing in the morning For long stretches, the morning of the hearing had the character of a comprehensive hearing of views. In addition to the complainant, the Federal Government and the Länder, representatives from academia, associations, organisations, foundations, parliamentary groups in the Bundestag, as well as companies and entrepreneurs, made statements. Around 20 experts were heard during the hearing. According to consistent reports, unequal treatment of business assets and other assets was largely affirmed; however, it remained disputed whether and to what extent this unequal treatment can be constitutionally justified. At the same time, it became clear that the empirical basis for individual assumptions concerning the effect of the relief rules did not appear to be consistently robust. Particularly on the question of whether the preferential treatment of business assets is necessary to secure jobs, investment and innovation, the assessments presented were sometimes widely divergent. ### Positions on liquidity, business preservation and equal treatment The Federal Government continued to consider the legislature’s objectives viable. According to this view, the preferential rules serve in particular to protect jobs, investment and innovative capacity. The Bundesverband der Deutschen Industrie pointed out that a high enterprise value does not automatically mean available liquidity. From the business community’s perspective, an inheritance tax burden may result in the tax having to be financed through loans, sales of shares or additional distributions. This could impair the company’s investment capacity. Business assets are often tied up long-term in machinery, buildings or other operational structures. The complainant countered that the relief rules do not only benefit acquirers who actually manage a business. Pure shareholders who essentially receive dividends may also benefit. In such a case, according to his account, it is not the business that is protected, but the acquirer’s assets. In the hearing, the complainant also argued that company heirs should have to pay at least 10 percent tax on the acquisition. The sale of business assets was also described by some participants as a possible means of financing the tax. Others countered that this could jeopardise the continued existence of operational structures. ### Voices from academia, politics and associations Different emphases were set by academic contributors. An economic researcher referred to the concentration of wealth in Germany and stated that around one third of total wealth is attributable to the richest one percent. A tax law scholar questioned, among other things, the acquisition-related threshold of the current rules. ## Large acquisitions and needs-based relief test in focus ### Criticism of § 28a ErbStG In the afternoon, the focus was on large acquisitions and the structuring options associated with them. At the centre was the needs-based relief test under § 28a ErbStG, which concerns large acquisitions of privileged assets and was introduced following the 2014 decision of the Bundesverfassungsgericht. It was critically discussed that, even after the 2016 reform, privileged assets in the billions can be transferred without a tax burden if the statutory requirements are met. The rule is linked to the acquirer’s ability to pay, but does not directly examine whether the business and jobs are preserved. According to the Statistisches Bundesamt (Federal Statistical Office), § 28a ErbStG was applied in 34 cases in 2025. The regular tax would have amounted to EUR 3.95 billion; EUR 3.7 billion was remitted. This included 28 gifts with an average tax exemption of EUR 123.1 million per gift. The Senate asked why the threshold of EUR 26 million is linked to the acquisition and not to the company, even though the relief is intended to protect the company. It was also discussed that large acquisitions do not have to satisfy any additional requirements beyond the payroll sum and retention period. ### EUR 26 million threshold and valuation The hearing also addressed the practical effect of the EUR 26 million threshold using calculation examples. It was discussed that a capitalisation factor of 13.75 with annual earnings of EUR 1.9 million results in an income value of EUR 26.125 million. This would exceed the relevant threshold. This calculation illustrated that classification as a large acquisition depends not only on nominal asset values, but also on valuation parameters. Particularly in the case of profitable companies, the threshold can therefore also be reached at amounts that, in entrepreneurial practice, are not necessarily equivalent to corresponding available liquidity. ### Structuring options for large business assets The hearing also addressed structures through which an acquirer’s available assets may appear low. A representative of a citizens’ movement criticised in Karlsruhe that the needs-based relief test in place since 2016 invites people to “calculate themselves poor” (translated meaning). The following constellations in particular were addressed: - the involvement of family foundations, - the appointment of underage heirs, - the structuring of assets with a view to the valuation and transfer date. These points were not treated as a conclusive assessment of individual structures. Rather, they served the constitutional review of whether the statutory rules, in their actual effect, still correspond to the purpose pursued by the legislature. ## Alternatives to the current preferential treatment discussed ### Deferral, participation models and flat-rate taxation In the course of the statements, alternatives to the existing system of preferential treatment for business assets were repeatedly addressed. These included, among other things, a long-term deferral of inheritance and gift tax instead of a full tax exemption, for example over a period of 20 years. State participation as a silent partner was also mentioned as a conceivable approach. It was objected against a deferral that even a deferred tax claim withdraws capital from the company. The burden would not be eliminated, but merely spread over time. It was also submitted that a deferral would only be viable at tax rates of up to around 10 percent; at higher tax rates, inheritance tax could economically have the effect of a significantly increased income tax rate. Several experts expressed sympathy for a flat tax with a broad tax base and few exceptions. If such a reform were to be structured in a revenue-neutral manner, however, a tax rate more in the order of 15 percent rather than 10 percent was considered. It was also pointed out in this context that an inheritance tax burden can meet an already existing income tax burden of around 48.5 percent. ### Further models and foreign examples Further considerations ranged from taxation based exclusively on earnings to a capital levy. The hearing also referred to foreign models. Denmark was cited as an example of moderate taxation of business assets. No model emerged in the hearing that would unquestionably reconcile liquidity protection, equal treatment and tax revenue in equal measure. The choice between the conceivable regulatory concepts lies primarily with the legislature. The Bundesverfassungsgericht traditionally grants the legislature broad discretion in structuring inheritance tax. At the same time, any statutory amendment is likely to be politically controversial. Even after the 2014 decision, it was not possible to reach political agreement within the deadline set by the Bundesverfassungsgericht. ## Possible decisions and practical classification ### No clear indication of complete rejection How the Bundesverfassungsgericht will decide remained open after both days of hearings. The Senate did not reveal any clear tendency. There was no express indication that the Court considers the concept of preferential treatment for business assets as a whole to be unconstitutional. It therefore remains conceivable that the Court will again approve the relief concept in principle, but require improvements for large acquisitions. Such improvements could concern, for example, the level of the EUR 26 million threshold, its structure as a company-related threshold, or additional requirements for the preferential treatment. It is likewise possible that the Court will assess individual provisions differently. The decisions in both proceedings are expected to be announced only in several months. At the Bundesverfassungsgericht, several months regularly pass between an oral hearing and pronouncement of judgment; in 2014, the judgment on inheritance tax was issued around five months after the oral hearing. ### Legal situation until the decision Until a decision is issued, the current law continues to apply unchanged. If the Bundesverfassungsgericht objects to the existing provisions, various forms of decision are possible. The Court may, for example, issue a declaration of incompatibility combined with an order for continued application for a limited period, or declare individual rules no longer applicable with immediate effect. A new statutory regulation by the legislature with effect for certain cases from the date of pronouncement of the judgment may also be considered, to the extent the Bundesverfassungsgericht permits this. The specific consequences will depend on the operative part of the judgment and on the reasons for the decision. From a practical perspective, it would be obvious for the legislature, in the event of an adjustment, also to address further application issues in inheritance tax law that have long been known. These include, among others, the distinction of administrative assets in the case of real estate, the preferential treatment of housing companies and hotels, the retention rules, the reinvestment clause and the tax exemption for the family home. ## Frequently asked questions ### When will the Bundesverfassungsgericht decide on inheritance tax and relief for business assets? A decision in proceedings 1 BvF 1/23 and 1 BvR 804/22 is expected only in several months, presumably no longer within 2026. Until the decision is pronounced, the current legal situation remains applicable without change. ### What is at issue before the Bundesverfassungsgericht regarding the needs-based relief test under § 28a ErbStG? § 28a ErbStG concerns large acquisitions of privileged business assets and is linked to the acquirer’s ability to pay. The Bundesverfassungsgericht is examining whether this structure justifies the unequal treatment compared with acquirers of non-privileged assets. ### What practical consequences can the Karlsruhe inheritance tax proceedings have for company heirs? For company heirs, depending on the decision, there may be changes to the preferential treatment of large business assets. Possible consequences include, in particular, legislative improvements to thresholds, requirements or the review of relief needs. ## Tax law advice on inheritance tax issues The hearings in Karlsruhe show that inheritance tax lies at the intersection of asset succession, business continuity and constitutional requirements. Particularly in the case of larger assets and corporate shareholdings, the legal and tax framework conditions can have a significant influence on the structuring of succession. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law issues; further information can be found under [Legal advice in tax law](https://www.mtrlegal.com/rechtsberatung/steuerrecht/).