Inheritance Taxes in Germany: Increasing Pressure on Business Assets
The debate on higher inheritance taxes is intensifying. Business assets are increasingly in the political spotlight. Why early structuring decisions matter – and why acting sooner rather than later can be crucial.
New Tax Debate in Germany: Why Business Assets Are Once Again in Focus – and What Entrepreneurs Should Now Consider
The discussion surrounding new or increased taxes in Germany has gained significant momentum in recent months. At the center of the debate are current reform proposals concerning inheritance and gift tax, with business assets once again becoming a focal point of political and societal controversy. These proposals have recently been discussed extensively in the German business press, including in the Frankfurter Allgemeine Zeitung.
Proposals originating from within the Social Democratic Party (SPD) envisage the introduction or expansion of high personal allowances, while at the same time significantly reducing the existing – in some cases very generous – tax reliefs for business assets. Among the measures under discussion are a lifetime allowance of around one million euros for private asset transfers and a higher taxation of larger business assets above defined thresholds, in some cases combined with extended deferral arrangements.
Business Assets Between Fairness and Location Policy
The political guiding principle behind these reform approaches is clear: large fortunes are expected to contribute more to the financing of the public sector, and the overall tax burden is to be distributed more fairly. This objective is legitimate and enjoys broad societal support. At the same time, the key question arises as to whether business assets can be equated with purely private financial or consumption assets.
Businesses represent productive capital. They secure jobs, enable innovation, continuously generate tax revenues and social security contributions, and play a key role in economic stability. A heavier tax burden in the context of succession may therefore inhibit investment, complicate succession planning and, in adverse cases, force the sale or breakup of companies in order to finance tax liabilities.
Tax Increases: More Fairness – but at What Cost?
Supporters of reform argue that the existing reliefs for business assets are very far-reaching and, in individual cases, lead to significant unequal treatment. Economic studies also suggest that a moderate reduction of such privileges may be justifiable, provided that jobs and business continuity are not put at risk.
What ultimately matters, however, is the specific design of the measures. While tax increases may generate additional revenues in the short term, they can weaken investment incentives, entrepreneurial initiative and capital formation in the long run. Excessive taxation of substance risks undermining the value creation base on which social security systems, collectively agreed wages and public services depend. Social fairness, in the long term, presupposes a strong real economy – not its gradual erosion.
Legislation, Constitutional Law and Time Pressure
German constitutional law sets strict limits on retroactive taxation; genuine retroactivity is generally impermissible. In practice, however, tax reforms often operate with cut-off dates or de facto anticipatory effects from the moment political intentions are announced.
In addition, the publication of the decisive ruling of the Federal Constitutional Court on the constitutionality of the existing relief provisions for business assets is currently expected on a daily basis. Regardless of the precise outcome, it can be assumed that the legislator will implement adjustments on the basis of this decision within the current year. This temporal proximity alone significantly increases the planning pressure on entrepreneurs.
Further Tax Policy Perspectives: Tightening More Likely Than Relief
Beyond the current inheritance tax debate, it can be assumed that tax policy discussions in Germany are far from concluded. In addition to further adjustments to inheritance and gift tax, the reintroduction of a net wealth tax or comparable substance-based taxes is also regularly debated. In view of high public expenditure, demographic developments and growing social policy obligations, much suggests that the tax framework for wealthy individuals and entrepreneurs will become more restrictive rather than more generous over time. Tax relief is politically difficult to implement and often not sustainable.
Foundation Solutions as a Strategic Response
Against this background, long-term and legally robust structuring solutions are becoming increasingly important. It should be noted that tax tightenings – such as restrictions on relief eligibility or new deferral mechanisms – generally attach to the acquisition event itself and therefore affect every recipient, regardless of whether the recipient is a natural person or a foundation.
The decisive factor therefore lies less in the legal form of the recipient than in the timing of the structuring. A timely transfer of business assets into a foundation can result in the long-term preservation of the – often more favorable – tax framework applicable at the time of transfer. This effect is not merely temporary but may extend across generations, as foundations are typically designed for permanence.
Liechtenstein foundations in particular offer additional structural advantages in this context: they are not subject to German substitute inheritance tax and therefore not exposed to periodic re-taxation at thirty-year intervals, as is the case for domestic foundations. As a result, future tax tightenings do not automatically take effect at regular intervals. Even if a structuring is implemented only after new rules have entered into force, this may still prove advantageous across generations, as the tax burden typically arises only once.
What matters is not the circumvention of statutory provisions, but rather the forward-looking organization of assets within the existing legal framework, with the aim of long-term stability, planning certainty and entrepreneurial continuity.
FS+P AG: Structure, Foresight and Legally Sound Implementation
Together with its network partners, FS+P AG, based in Liechtenstein, advises entrepreneurs, families and asset holders on national and international wealth and succession planning. A particular focus lies on assessing new tax policy developments – especially in the area of inheritance and wealth taxes – and on the legally secure, long-term structuring of business and private assets. From the perspective of a long-term-oriented wealth planner, the objective is not short-term tax optimization, but stability, predictability and the preservation of entrepreneurial performance in the interests of society, employees and future generations.