Possible Tightening of German Inheritance/Gift Taxation


Article by Ralf Eckert, M. Read Moore, Dirk Pohl and Richard Schmidt

Arrange Inheritance Now

Inheritance and gift tax

It is no longer a question of whether the German tax practice will be reformed, rather a question of when and how the reform will take place. Entrepreneurs as well as wealthy private equity investors in certain asset classes should react quickly in order to save as much money as possible. Following are, some important questions with answers about inheritance and gift tax planning which are addressed in respect of indicated legislative changes.


The judges of the German Supreme Tax Court (BFH) in Munich appeared before the public with their decision in early 2002. The German chief financial judges consider pivotal points of existing taxation practice for estates and gifts as unconstitutional. The Federal Constitutional Court (BVerfG), located in Karlsruhe, has been concerned with this issued on the grounds of the BFH since then.

It is not exactly clear when the paving decision on the taxation of estates and gifts can be expected from Karlsruhe. Some experts had expected a decision last year, many think it will be this year and some expect it in 2006.

Entrepreneurs are acting swiftly

It is clear that a decision will be made in the near future, and that presumably nothing will remain as it was with the taxation of estates and bestowals in Germany. Wealthy individuals and in particular entrepreneurs should not watch and wait until Karlsruhe or politics makes the decisions. In fact, there is still time to use the numerous benefits within the existing tax legislation. This applies in particular for the transfer of real estate and company assets, which has a distinct advantage compared to cash and savings in bank accounts or securities. Caution should, however, be taken with overhasty decision making, as Company succession is not just a case of saving on taxes. Maintaining the company and securing funds for old age are just as important.

Suggestions for the reform are already drafted

The Karlsruhe judges are expected to follow their colleagues in Munich in most aspects in declaring the current taxation practice incompatible with the German constitution. Then it would be politics turn - and that can happen quickly. Since the middle of last year the Federal Council of Germany has a "Draft of a legislative reform for estate taxation" on ice. Behind this is an initiative of the state government of Schleswig-Holstein led...

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