Inheritance Tax before the Federal Constitutional Court – What Clients Need to Know Now
The Hearings Scheduled for 12 and 13 October 2026
The First Senate of the Federal Constitutional Court (BVerfG) will hear on 12 October 2026 an application for abstract judicial review of statutes concerning inheritance and gift tax (Case No. 1 BvF 1/23). The proceedings concern several key provisions of the Inheritance and Gift Tax Act (ErbStG), namely:
- § 12 Abs. 3 ErbStG – valuation of real property,
- § 16 Abs. 1 ErbStG – personal tax allowances,
- § 19 Abs. 1 ErbStG – tax rates.
On 13 October 2026, the First Senate will then hear a constitutional complaint that is indirectly directed against several provisions of the ErbStG (Case No. 1 BvR 804/22). At issue, in essence, is whether the inheritance and gift tax reliefs (including the provisions relevant to relief for business assets, §§ 13a, 13b, 13c, 28a ErbStG) and the valuation rules applicable to business assets are compatible with the Basic Law. The constitutional complaint is directed against these provisions only indirectly; the relief provisions are reviewed incidentally in the constitutional complaint proceedings. The complainant argues that, when acquiring other assets that do not qualify for relief, the provisions place him at a disadvantage in a manner that is unconstitutional.
Even though §§ 13a, 13b ErbStG are not directly challenged, the decisions in these procee-dings may have significant implications for the relief available for business assets.
An Oral Hearing Is Not Yet the Decision
An important point of context is that the proceedings on 12 and 13 October 2026 are merely oral hearings – not the decision itself. The judgment will be handed down only at a later date, which is not yet known. Experience shows that several weeks to months generally elapse between an oral hearing and judgment.
There is therefore no immediate need for action merely because of the hearing dates. Never-theless, clients should monitor developments closely, as both proceedings may have fundamental implications for inheritance and gift tax as a whole.
What Happens If the BVerfG Declares the Provisions Unconstitutional?
If the BVerfG concludes that the challenged provisions violate the Basic Law in whole or in part, the central question will be: What happens during the transitional period pending new legislation?
The following principles can be derived from the BVerfG’s previous approach in comparable cases – particularly its judgment of 17 December 2014 concerning the unconstitutionality of the reliefs for business assets (§§ 13a, 13b ErbStG, BVerfG, Urt. v. 17.12.2014 – 1 BvL 21/12, DStR 2015, 31):
1. Declaration of Incompatibility Rather Than Nullity
In its 2014 decision, the BVerfG did not declare the challenged provisions void; instead, it merely established that they were incompatible with the Basic Law. Such a declaration of incompatibility is issued in particular where the legislature has several options for remedying the unconstitutional situation (BVerfG, Urt. v. 17.12.2014 – 1 BvL 21/12, DStR 2015, 31 Rn. 286). It is likely that, if it finds a constitutional violation in the current proceedings, the BVerfG will take the same approach.
2. Continued Effect of Existing Law
As a general rule, a declaration of incompatibility means that courts and administrative authorities may no longer apply the provision to the extent of the incompatibility identified and that pending proceedings must be stayed (BVerfG, Urt. v. 17.12.2014 – 1 BvL 21/12, DStR 2015, 31 Rn. 286). In the interests of reliable financial and budgetary planning and consistent administration for periods in which assessments have largely already been completed, however, the BVerfG has repeatedly – including in its 2014 decision – held that continued application of unconstitutional provisions is justified and ordered that existing law remain in force until new legislation is enacted (the so-called order for continued effect) (BVerfG, Urt. v. 17.12.2014 – 1 BvL 21/12, DStR 2015, 31 Rn. 287). The 2014 judgment stated:
“In light of the foregoing considerations, the Senate orders that the provisions found to violate the principle of equality shall remain in force until new legislation is enacted." (BVerfG, Urt. v. 17.12.2014 - 1 BvL 21/12, DStR 2015, 31, Rn. 292)
This means that, if the BVerfG again orders the continued effect of the unconstitutional provisions in these two proceedings, the current inheritance tax rules would initially continue to apply even after a finding of unconstitutionality, until the legislature enacted new legislation compatible with the Constitution. There would therefore be no legal vacuum in which no inheritance or gift tax could be levied.
3. Time Limit for the Legislature
In addition to ordering the continued effect of existing law, the BVerfG typically requires the legislature to enact new legislation within a reasonable period. In its 2014 judgment, the Court gave the legislature until 30 June 2016 – approximately 18 months after the judgment was handed down. In the case involving the unconstitutionality of the 2006 ErbStG, the period for enacting new legislation was approximately two years (until 31 December 2008).
It can therefore be assumed that, if it finds a constitutional violation, the BVerfG would likewise set a period of several months to two years in the current proceedings. In the past, the legislature has generally used the entire period and even exceeded it in 2016: the new ErbStG was not promulgated in the Federal Law Gazette until 9 November 2016, even though the deadline had already expired on 30 June 2016.
Irrespective of the length of the period, however, the question arises whether the new provisions can also be enacted with retroactive effect for measures already taken during the intervening period. Experience shows that this is possible: The 2016 amendments to the ErbStG applied retroactively to acquisitions in respect of which the tax became due after the deadline (30 June 2016) had expired (see § 37 Abs. 12 ErbStG). It is therefore advisable to monitor not only the latest possible trigger – the promulgation of the new provisions in the Federal Law Gazette – but also the expiry of the deadline for any new legislation.
If the legislature fails to fulfil its duty to enact new legislation in time, the BVerfG has far-reaching enforcement powers under § 35 BVerfGG.
Implications for the Reliefs for Business Assets (§§ 13a, 13b ErbStG)
Even though the current proceedings do not directly concern §§ 13a, 13b ErbStG, their potential implications are significant: for example, if the BVerfG were to deny the Federation’s legislative competence for parts of the ErbStG in the abstract judicial review proceedings, this could call into question the basis of the ErbStG as a whole – including the relief provisions for business assets. In addition, it is to be expected that, in connection with new legislation concerning parts of the ErbStG, the relief provisions for business assets would also be amended or tightened.
Our Recommendation
We recommend not delaying or accelerating planned asset transfers solely because of the upcoming hearing dates. If transfers of business assets have been planned for some time in any event, however, there is much to be said for implementing them promptly, as any new legislation is more likely to tighten the rules. Potential risks can, for example, be addressed through appropriate revocation or rescission clauses in the transfer agreements. Please feel free to contact us to discuss this.
Once the BVerfG’s decision is available, we will inform you of the specific implications and any action that may be required.
