Two complaints heard in Karlsruhe

On Monday, 12 October, the First Senate of the Federal Constitutional Court (Bundesverfassungsgericht) heard Bavaria's abstract review application on the inheritance tax rules, case 1 BvF 1/23. On Tuesday, 13 October, the court took up a constitutional complaint, case 1 BvR 804/22, brought by a private heir. Heinrich Fischwasser inherited securities and real estate from an aunt and, according to tagesschau, was due to pay tax on them, which he considers unfair. He argues that equal assets must be taxed equally regardless of who owns them, and that the rules breach the equality clause of the Basic Law.

Court president Stephan Harbarth opened the hearing by saying that the equal distribution of tax burdens touches the sense of justice of many people. He then made clear that the proceeding concerns the Basic Law alone, not the political fallout for family firms.

“This raises difficult political questions.”

He added that answering them is not the court's task, and that the case asks only whether the exemption rules for business assets meet the requirements of the Basic Law.

How the business exemption works

For small and medium firms, 85 percent of inherited business assets can be exempt if the heirs keep the company running for five years while maintaining the total wage level. After seven years of continuation, the inheritance or gift tax falls away entirely, according to tagesschau. Large firms with business assets above 26 million euros face an additional test: heirs must show that their available private assets cannot cover the tax. Handelsblatt notes that the law sets no upper limit on this route.

Kevin Kühnert, a former SPD general secretary who now works for the citizens' movement Finanzwende, told the court that this needs-based test invites heirs to calculate themselves poor. In his view, the rule no longer asks what is needed to protect firms and jobs, only whether the owner is liquid. Moving money elsewhere before the reference date would make the tax claim lapse without replacement.

Swen Bäuml, a professor of tax law whose firm INFOB advises family businesses on asset structuring and succession, sees the same mechanism from the other side.

“Whoever structures their assets properly, meaning a low share of administrative assets, can by law transfer even multi-billion business assets tax-free.”

Revenue lost and Hamburg's share

The Federal Statistical Office counted 34 such cases in 2025. Of nearly 4 billion euros in assessed tax, the fiscus waived about 3.7 billion, which means more than 90 percent of the tax liability disappeared. The waived volume has nearly tripled since 2022.

Hamburg's finance senator Andreas Dressel put the city's loss at 857 million euros, about 7.5 percent of the nationwide waived volume, which he said makes Hamburg above average affected. NDR attributes the figure to the past ten years, while WELT ties it to the period since the 2016 needs test; both report the same 857 million. Dressel argued for a uniform national rule.

“It must absolutely remain uniform across the country, including to preserve legal and economic unity.”

He also warned that regional rules would let people move their residence shortly before death and would force authorities to apply different rates to a single family's holdings in several states.

Parties and what comes next

The SPD proposes a five million euro allowance for companies, generous deferral options so that no firm has to close, and a one million euro lifetime allowance for smaller inheritances. CDU and CSU reject these proposals, arguing that medium-sized and family businesses must not be burdened further in the current economic situation. Bavaria wants each state to set its own inheritance tax, similar to the trade tax, while Hamburg wants one federal rule.

Federal finance state secretary Michael Schrodi (SPD), from the ministry of Lars Klingbeil (SPD), spoke for the federal government in the hearing. A Handelsblatt commentary argues that the SPD, Greens and Left are already demanding higher taxes on rich heirs, while the Union defends the existing rules without conviction.

The court has accepted that the legislature may exempt business assets, even on a very large scale, and has struck down valuation rules three times, most recently in 2014. The current exemption rules were adjusted in 2016 to meet that ruling. A decision is expected in some months.