If you live in Germany — even temporarily — you may already be part of the German tax system in more ways than you realise. A landmark federal court case is now putting Germany's inheritance tax laws under the microscope, questioning whether the significant advantages granted to heirs of large companies are actually constitutional. While the case centres on big business, the source notes that the outcome and the underlying rules are relevant to everyone living in the country. For expats and immigrants, understanding how German inheritance tax works — and what could change — is a practical matter worth paying attention to.
The federal court case concerns whether Germany's current inheritance tax law is constitutional, with particular scrutiny on the major advantages it offers to heirs of large companies. German law has historically provided certain heirs — especially those inheriting business assets — with substantial tax breaks compared to those inheriting private wealth such as cash, property, or investments.
The argument before the court is essentially about fairness: critics say these advantages disproportionately benefit the wealthy and may violate constitutional principles of equal treatment. The case is ongoing, meaning no ruling has been delivered yet, and the final decision could have wide-reaching consequences for how inheritance is taxed in Germany.
It is important to note that while the case focuses on large companies and their heirs, a ruling that reshapes the legal framework could ultimately affect the rules that apply to ordinary residents — including expats — who inherit assets in Germany.
For anyone living in Germany, inheritance tax — known as Erbschaftsteuer — can apply to you in two key situations: if you are resident in Germany and inherit assets from anywhere in the world, or if you inherit assets located in Germany regardless of where you live. This is why the rules matter even to people who moved here recently or who still have family and assets abroad.
Germany uses a tiered system, where the tax rate and the tax-free allowances depend on your relationship to the person who has died. Close family members generally benefit from higher tax-free thresholds than more distant relatives or unrelated heirs. Beyond those allowances, the portion of the inheritance above the threshold is taxed at rates that vary depending on both the relationship and the total value inherited.
The business heir advantages at the heart of the court case exist because German law has long sought to protect family-owned companies from being broken up or sold simply to pay an inheritance tax bill. However, the scale of those advantages — and who qualifies for them — is now under constitutional challenge.
For expats and immigrants, the practical implications fall into a few areas:
You may already be subject to German inheritance tax. If you are registered and resident in Germany (and especially if you have been for some time), German tax law may treat worldwide inheritances you receive as taxable here, not just assets located in Germany. Your home country's rules may also apply, so double taxation treaties — where they exist — become relevant.
Your heirs may face German tax on assets you leave behind. If you own property, savings, or other assets in Germany, the people who inherit from you could face German inheritance tax, even if they live abroad.
The outcome of this case could change the rules. If the federal court finds parts of the law unconstitutional, the German parliament would need to revise the legislation. Any changes could affect thresholds, rates, or the special treatment of business assets. It is too early to say what changes, if any, will result.
Cross-border inheritance is complex. As an expat, your situation often involves more than one country's tax rules, and the interaction between them can be complicated. This is an area where professional advice is particularly valuable.
Citizenship is not the deciding factor — residency is. If you are registered and habitually resident in Germany, you are generally considered a tax resident, and German inheritance tax rules can apply to inheritances you receive, regardless of where the assets are located or where the deceased person lived. If you are not resident in Germany but inherit assets located here, German tax may still apply to those specific assets. Always consult a qualified tax adviser for your individual situation.
The case is focused on the constitutional validity of business heir advantages. However, a court ruling that requires the government to reform the law could lead to broader changes in how inheritance tax is structured. It is not possible to predict the outcome or its exact effects at this stage. The safest approach is to stay informed as the case progresses and, if you have assets or family ties in Germany, to speak with a tax professional about your personal circumstances.
German tax law is complex, and inheritance situations involving multiple countries are especially so. A Steuerberater (tax adviser) registered in Germany, or a lawyer specialising in inheritance law (Erbrecht), can provide guidance tailored to your situation. For cross-border cases, look for professionals with experience in international estate planning.
Germany's inheritance tax law is facing a significant constitutional test, and while the case centres on large business estates, the broader rules affect everyone living in the country — including expats and immigrants. Whether you own assets in Germany, expect to inherit from family abroad, or simply want to understand your obligations as a resident, now is a good time to get familiar with the basics.
The court case is ongoing, so the rules have not changed yet. However, it is wise to:
Keep an eye on how the case develops. A ruling that finds parts of the law unconstitutional would require legislative change, and that could affect thresholds, rates, or exemptions that currently apply to you.
Source: The Local
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