German Inheritance Tax Reform May Impact Real Estate Companies

Germany's inheritance and gift tax law faces potential reform as proposals to remove tax exemptions for large real estate holdings are debated. A constitutional court ruling is anticipated.

Berlin – Debate is intensifying in Germany surrounding potential reforms to inheritance and gift tax legislation, particularly concerning business assets. The Green Party, within the Bundestag's finance committee, has proposed ending tax exemptions for substantial real estate portfolios, previously governed by the "300 Wohnungen" (300 apartments) provision.

The Christian Democratic Union (CDU) has opposed this initiative, arguing for simplification and standardization in tax law, and stressing the necessity of preserving exemptions for business assets, including property rental businesses, to maintain employment. The Social Democratic Party (SPD) has also rejected the proposal as it stands but is advocating for a more fundamental overhaul of inheritance tax, warning that isolated changes could create new avenues for avoidance.

The Federal Constitutional Court is expected to deliver a ruling in the latter half of 2026 on the constitutionality of existing inheritance and gift tax provisions for business assets. Regardless of the court's decision, legislative action is anticipated. Specific tax reliefs for residential property companies and the application of the "need-based relief test" under § 28a ErbStG are likely to be abolished.

BDO AG advises business owners and family business stakeholders to proactively address these issues and implement suitable tax-efficient strategies before potential reforms take effect. Prompt action is recommended to leverage current favorable tax conditions and mitigate potential future tax burdens during business succession.