Germany currently lets family business owners pass companies to the next generation almost tax-free: business asset exemptions saved heirs roughly €7 billion in 2024 alone, according to calculations by the German Tax Justice Network based on official statistics. In 2026, that privilege faces a double challenge. The Federal Constitutional Court is reviewing whether the exemptions are unconstitutional (case 1 BvR 804/22), and the SPD has proposed abolishing them outright. If the exemptions fall, the economics of family succession shift, and a meaningful share of Germany's succession-age companies will look for external buyers instead.
If you own a German Mittelstand company, or you're looking to acquire one, the inheritance tax debate deserves a place on your radar. It won't change what a company is worth. It may well change how many companies come to market, and when.
How does Germany's inheritance tax treat family businesses today?
Under sections 13a and 13b of the German Inheritance and Gift Tax Act (ErbStG), qualifying business assets can be transferred with an 85% exemption (standard relief) or a 100% exemption (optional relief). The conditions: the heir keeps the business running for five to seven years and maintains the payroll. Private assets get no such treatment; a child inheriting cash or securities has a personal allowance of €400,000 and pays 7–30% above it.
The scale is substantial. Germany's Federal Statistical Office recorded §13a exemptions of €4.0 billion on inheritances and €13.1 billion on gifts in 2024 alone. For transfers above €26 million, a "needs test" can waive the tax almost entirely: in 2024, 45 large-scale heirs received qualifying assets of around €12 billion, and roughly 95% of the €3.5 billion in assessed tax was subsequently waived, an effective rate of about 2%, according to the German Tax Justice Network.
For decades, this regime quietly subsidized keeping companies in the family. Selling to an external buyer triggers income tax on the capital gain; handing the business to your children triggered, in most structured cases, nothing.
What's changing in 2026?
Two things, on parallel tracks.
The Constitutional Court review. In case 1 BvR 804/22, Germany's Federal Constitutional Court is examining whether the business asset exemptions violate the constitutional principle of equal treatment. A court spokesperson told dpa in January 2026 that a ruling is expected in the course of 2026. The court has struck down inheritance tax rules twice before, in 2006 and 2014, and each time the legislature had to tighten the regime. The current system is itself the product of the 2014 ruling, and it's now back in Karlsruhe.
The political proposal. On 13 January 2026, members of the SPD parliamentary group published a reform concept called "FairErben." Its core ideas, per the analysis by law firm Rödl & Partner: replace the renewable ten-year personal allowances with a single lifetime allowance of €1 million per person, abolish the business asset exemptions entirely, grant a €5 million lifetime allowance for business transfers instead (with a progressive rate above it, level still undefined), and let heirs pay the resulting tax over up to 20 years if jobs are preserved. It's a discussion paper, not draft legislation, and the CDU/CSU has so far rejected it. But it marks the direction of travel, and the €5 million threshold is lower than it sounds: under Germany's standardized valuation method, it's reached at roughly €500,000 in average annual pre-tax profit.
Owners of large fortunes have already read the signals: gifted business assets above €26 million halved in 2024 to €7.4 billion, and total transferred business assets fell 27.9% to €21.5 billion, per the Federal Statistical Office, as major transfers had been pulled forward ahead of any rule change.
What does this mean for Mittelstand succession, and for buyers?
Germany faces roughly 109,000 companies per year seeking succession through 2029, per KfW Research, and 53% of owners say they'd prefer to keep the business in the family. The tax regime was a thumb on that scale. Remove it, and the family-versus-sale decision gets rebalanced on its merits: whether the next generation actually wants to lead, whether the company can fund the owner's retirement, and which path better protects employees and the owner's life's work.
Three practical consequences stand out:
- More companies will test the market. A family handover that costs meaningful tax competes differently against a sale. Expect a higher share of succession cases to run a structured sale process, or at least a dual-track evaluation.
- Timing pressure cuts both ways. Owners committed to family succession have an incentive to transfer before the rules change; German law generally protects completed transfers, though the 2016 reform applied retroactively to a cutoff date months before the law was enacted. Owners leaning toward a sale face no such deadline, but a wave of newly available targets could increase seller-side competition later.
- For acquirers, the pipeline widens. Strategic buyers, private equity platforms and search funds looking at the DACH lower mid-market may see more actionable targets from 2027 onward, particularly in fragmented sectors where succession-driven consolidation is already running.
What should owners do now?
Don't rush a gift for tax reasons alone. A transfer to children who don't want to run the company solves nothing; the exemptions also claw back if heirs sell within the five-to-seven-year holding period. The sensible sequence: get a current, defensible valuation, have your tax advisor assess a transfer under current law including safeguards such as revocation clauses, and prepare the sale scenario in parallel. Most of what makes a company ready for handover, clean financials, a second management layer, documented contracts, also makes it more valuable to a buyer.
NORDVISORY is an M&A advisory firm, not a tax advisor; German inheritance tax questions belong with your Steuerberater. What we do: tell you what your company is worth to the market and run the sale process if that's the path you choose. Get in touch for a confidential conversation.
FAQ
Will Germany abolish the inheritance tax exemption for business assets?
That's the open question of 2026. The Constitutional Court is reviewing the exemptions (case 1 BvR 804/22), and a ruling against them would force the legislature to tighten the regime. The SPD's "FairErben" paper already proposes replacing the exemptions with a €5 million allowance plus payment over up to 20 years. Nothing is enacted yet.
Does the reform affect selling a German company to an external buyer?
Not directly. Sale proceeds are subject to income tax, not inheritance tax. Indirectly, a tougher inheritance tax regime is likely to push more succession-age companies toward a sale, increasing deal flow in the German lower mid-market.
Are completed transfers protected if the law changes?
Completed transfers are generally governed by the law in force at the time of execution. Caution on timing, though: after the 2014 court ruling, the new rules applied retroactively from 1 July 2016, months before the reform was formally enacted. A cutoff date can precede the law itself.
Why does this matter to international buyers?
Because supply may grow. Germany has a structural succession gap: more owners plan to close their companies than hand them over, per KfW Research. If family transfers lose their tax advantage, a larger share of profitable, succession-age Mittelstand companies will seek external buyers, including cross-border acquirers.
Sources
- Federal Constitutional Court, pending case 1 BvR 804/22 (opens in a new tab); timing per court spokesperson via dpa, January 2026
- BVerfG, judgment of 17 December 2014, 1 BvL 21/12
- SPD parliamentary group, "FairErben" policy paper (opens in a new tab), 13 January 2026; summary and analysis: Rödl & Partner, Nachfolge Kompass January 2026 (opens in a new tab)
- Federal Statistical Office (Destatis), press release No. 320 of 3 September 2025 (opens in a new tab), inheritance and gift tax statistics 2024
- Netzwerk Steuergerechtigkeit, analysis of the 2024 needs-test waivers and the ~€7bn total relief (opens in a new tab), 3 September 2025
- KfW Research, Succession Monitoring German Mittelstand 2025 (opens in a new tab)
Legal note: NORDVISORY is an M&A advisory firm, not a tax advisor. This article provides general information as of July 2026 and is no substitute for individual tax or legal advice.
NORDVISORY is an independent M&A advisory firm based in Hamburg, advising Mittelstand owners on company sales and succession processes.
Related: Taxes on selling a German company · Business succession in the German Mittelstand · Preparing a company sale
