The Federal Constitutional Court is currently examining the so-called exemption requirement test and wants to make a judgment shortly. Behind the cumbersome term lies a regulation from inheritance tax law that is quite difficult. In short: Anyone who inherits more than 26 million euros in business assets and can prove that he or she has no private assets may not have to pay a cent in taxes.
Only 45 people took the test in 2024. But the process allows large assets, which are often held in family businesses, to be passed on to the next generation almost tax-free. As the Tax Justice Network, a non-governmental organization, made public, company heirs inherited on average in 2024 260 million euros in company shares, but only paid 1.5 percent taxes on them. The federal states gave up 3.4 billion euros.Pretty absurd, thought A man from the Detmold district filed a complaint with the Federal Finance Court in 2021. He felt disadvantaged because, according to his tax office, he had to pay thirty percent tax on the 210,000 euros he had privately inherited from his deceased aunt. If he had inherited a company, the plaintiff argued before the Münster Finance Court, he would hardly have had to pay taxes. This violates the principle of equality.
On paper, there is a progressive inheritance tax in Germany: the tax rate increases with the inheritance, with children inheriting the first 400,000 euros tax-free. From the 26 millionth euro onwards, they would theoretically also have to pay thirty percent inheritance tax.
In practice, however, this size usually involves business assets, i.e. companies or shares in them. Tax exemptions apply here to prevent heirs from having to sell company shares or tangible assets and lay off employees in order to pay the inheritance tax.
Inheritance tax is considered a “stupid tax”
However, after the Federal Finance Court rejected his complaint, the plaintiff did not give in. Instead, he turned to the Federal Constitutional Court. One Assessment of the Federal Bar Association partly proved him right. In her statement, she came to the conclusion that the lawsuit has a “significance that goes beyond the individual case” because the legal situation has not yet been conclusively clarified. The existing regulation offers “an enormous incentive for tax planning models”. Simply put: for tax avoidance.
Because it is quite straightforward to simply simulate “need” with a clever financial advisor, inheritance tax is also colloquially known as the “dumb tax”. For example, you can convert private assets into business assets on the tax collection date or move them to a “charitable” family foundation and thus count yourself poor. Privileges that the Family Business Foundation, a lobby group for large German companies, is working to preserve.
Julia Jirmann from the Tax Justice Network describes the exemption requirement test as a tax loophole for the super-rich. She believes that not taking future profits from the inherited companies into account is problematic. In an interview with the taz, she criticized the need for protection test as contributing to the gap between rich and poor becoming ever wider. She already has it The poorer half of the population only has around two percent of total private wealth, while the richest one percent alone has 35 percent owns.
A look into the past shows: The Constitutional Court declared inheritance tax unconstitutional in 2006 and 2014. The verdict announced for this year is now also putting pressure on politicians. The SPD presented a concept this week and wants to delete the exemption requirement test and other exceptions for business assets. The SPD financial expert and member of the Bundestag Parsa Marvi told the taz that the court would once again critically assess the current privileges.