In August 2026, the Federal Constitutional Court (BVerfG) will hold oral hearings in two cases concerning the constitutionality of the German inheritance tax. The rulings themselves are not expected to be handed down until several months later. For private individuals and business owners who wish to inherit or leave an inheritance, these cases are of considerable practical importance.
First issue: Does the Federal Government even have the power to legislate?
The oral hearing in the proceedings 1 BvF 1/23 takes place on 12 August 2026 The case was brought by the Bavarian State Government. It considers the Inheritance Tax Act to be unconstitutional on formal grounds alone: the Federal Government may only regulate inheritance tax uniformly across the country if this is necessary to ensure equivalent living conditions. Bavaria considers this requirement under Article 72(2) of the Basic Law not to have been met.
Furthermore, Bavaria is challenging the substance of the current tax-free allowances under Section 16 of the Inheritance Tax Act (ErbStG) and the tax rates under Section 19 of the Inheritance Tax Act (ErbStG). Specifically, it is argued that the legislature has failed to adjust these amounts to reflect rising prices for years. Furthermore, the tax-free allowances do not take into account the fact that property in Munich or Hamburg costs many times more than it does in rural areas, for example. From a constitutional perspective, Bavaria bases this challenge on the guarantee of property rights under Article 14 of the Basic Law, the protection of marriage and the family under Article 6 of the Basic Law, and the general principle of equality under Article 3 of the Basic Law.
Second case: Is the preferential treatment of business assets constitutional?
On 13 August 2026 The court is hearing the case as part of constitutional appeal proceedings. An heir who, following the death of his aunt, inherited solely private assets – including a securities portfolio and property – considers the unequal tax treatment compared with heirs to business assets to be unconstitutional.
Background: The Inheritance Tax Act provides for far-reaching exemptions for business assets. Anyone who inherits a business may, under certain conditions, benefit from substantial tax exemptions. By contrast, anyone who inherits cash assets, securities or a let property pays the full rate of tax without any comparable relief. The complainant regards this as a discrimination that is not justified under constitutional law and unsuccessfully pursued the matter through the specialist courts before appealing to the Federal Constitutional Court.
What does this mean for heirs and donors?
Both approaches could fundamentally call into question inheritance tax in its current form. The following scenarios are conceivable following a court ruling:
- The legislature would need to increase the tax-free allowances and adjust them in line with price rises.
- The exemption rules for business assets could be revised or restricted.
- In the worst-case scenario, the entire Act would have to be rewritten.
Until the judgements are handed down, the current law remains applicable. Anyone who is currently planning a substantial inheritance or gift, or who is already facing an ongoing inheritance tax assessment, should keep an eye on further developments. In ongoing proceedings, it may be advisable to lodge an appeal and apply for the proceedings to be stayed in order to benefit from a potentially favourable ruling by the Federal Constitutional Court. In any case, individual tax or inheritance law advice is highly recommended.
Source: Haufe: Tax
This article was created with the help of AI and has been editorially reviewed.
