A significant loophole in German inheritance tax law has allowed heirs to avoid approximately €7.6 billion in taxes since 2021, according to a parliamentary response from the Federal Ministry of Finance revealed to the Greens parliamentary group and reported by “Handelsblatt”. This preferential treatment, facilitated by a mechanism known as the ‘Verschonungsbedarfsprüfung’ (exemption needs assessment), has resulted in the near-tax-free transfer of assets totaling around €24 billion to heirs.
The scale of the exemptions has dramatically increased. In 2021, only ten cases involving assets of around €1 billion triggered these tax reductions. By 2022, the number had surged to 45 instances, encompassing a total asset value of €11 billion.
The practice has drawn sharp criticism, with Greens finance policy spokesperson Katharina Beck labeling the current inheritance tax law “deeply unjust”. While acknowledging the legitimacy of state support for successors in smaller and medium-sized enterprises, Beck argued that the ‘Verschonungsbedarfsprüfung’ disproportionately benefits a tiny fraction of exceptionally wealthy individuals, rather than supporting local businesses like bakeries or craft workshops.
The current legal framework stems from a 2016 reform of inheritance tax law undertaken by the Grand Coalition government following a ruling by the Federal Constitutional Court. The reform introduced the ‘Verschonungsbedarfsprüfung’ allowing heirs, under specific conditions, to be exempt from inheritance tax. This is triggered when the value of the transferred business assets exceeds €26 million and the heir is unable to pay the tax using their own assets.
The provision’s future hangs in the balance, with a ruling from the Federal Constitutional Court anticipated in the coming months. Many legal experts predict that Karlsruhe will declare the exemptions for business heirs unconstitutional, potentially triggering a renewed debate on wealth distribution and inheritance tax fairness in Germany. The impending decision is expected to have substantial political ramifications, potentially forcing the government to reassess existing tax policies and address concerns about systemic inequality.