A recent parliamentary inquiry has revealed a significant tax loophole benefiting German heirs of businesses, allowing for the waiver of inheritance tax amounting to €7.6 billion since 2021. The disclosure, stemming from a response from the Federal Ministry of Finance to a request from the Green Party’s parliamentary group, highlights a system increasingly criticized for its inequity.
According to the Ministry’s figures, assets totaling roughly €24 billion have been transferred to heirs with minimal tax liability. While only ten cases involving assets close to a billion euros triggered these waivers known as “Verschonungsbedarfsprüfung” in 2021, the number surged dramatically to 45 in the following year, representing a collective asset volume of €11 billion.
The process, implemented following a 2016 reform of inheritance tax law by the former “Große Koalition” (Grand Coalition) after a ruling by the Federal Constitutional Court, allows heirs of businesses to potentially avoid inheritance tax under certain conditions. To qualify, the value of the transferred business assets must exceed €26 million and the heir must demonstrate an inability to pay the tax from their own resources.
“The government’s response to the Green Party’s inquiry demonstrates clearly that current inheritance tax law is profoundly unjust in practice” stated Katharina Beck, the Green Party’s financial policy spokesperson. While acknowledging the importance of supporting successors in small and medium-sized enterprises, Beck criticized the system’s disproportionate benefit to a tiny fraction of extremely wealthy individuals, arguing that it fails to assist the “corner bakery or artisan workshop” as intended.
The widespread application of this loophole is now facing a critical juncture. The Federal Constitutional Court is expected to deliver a verdict in the coming months and many legal experts anticipate a ruling declaring the exemptions for business heirs unconstitutional. This potential ruling could force a significant overhaul of inheritance tax regulations and intensify the debate regarding wealth distribution and fairness within the German economy. The current system is increasingly viewed as a contentious issue, potentially eroding public trust in the legitimacy of the tax system and exacerbating concerns about growing wealth inequality.
