Background:
The Federal Constitutional Court had set the legislator a final deadline of the end of September to revise the inheritance tax rules regarding benefits for business heirs. Until now, it was often the case that successors to a business were generally exempt from tax under certain conditions (e.g. continuing operations for a defined period, preserving jobs, etc.). The exemption rule provides that heirs of businesses are relieved from inheritance tax by 85% or up to 100%, provided the business is continued for five or seven years respectively.
Agreement:
The CDU/CSU, SPD, Greens and the Left Party have now, just before the deadline, finally agreed on new rules for the inheritance tax reform. To meet the deadline, the Bundestag and Bundesrat are scheduled to vote on the matter in an expedited procedure on Friday, 23 September 2016.
Under the agreement, business heirs will in principle continue to be exempt from inheritance tax by up to 100% if the business is continued on a permanent basis and jobs are preserved.
Agreement was also reached on advance discounts for family businesses, optional exemptions for administrative assets, and the conditions for tax deferrals.
In addition, measures to combat abuse were proposed, such as generally excluding leisure and luxury items (e.g. works of art, luxury yachts or vintage cars) from the benefits.
What happens next?
Should the legislative resolution still fail, the Karlsruhe judges could ultimately abolish the privileges for business heirs entirely. The Constitutional Court intends to address the matter again from 27 September.
Frequently asked questions
Frequently asked questions
What deadline did the Federal Constitutional Court set for the reform of inheritance tax?
The Federal Constitutional Court had set the legislator a final deadline of end of September 2016 to revise the inheritance tax rules for business heirs. Otherwise, the Karlsruhe judges threatened to entirely strike down the relief provisions for business successors.
How much relief from inheritance tax is available for business successions?
Heirs of a business can be exempted from inheritance tax by 85% or up to 100%. The prerequisite is that the business is continued for five or seven years respectively and that jobs are preserved.
What requirements must business heirs meet for full tax exemption after the 2016 reform?
Even under the new rules, business heirs can in principle be fully exempted from inheritance tax (100%). The prerequisites are that the business is continued on a lasting basis and that the jobs are preserved.
Which assets are excluded from the inheritance tax preferential treatment following the reform?
To combat abuse, recreational and luxury items have generally been excluded from the preferential treatment. This includes, in particular, works of art, luxury yachts, and vintage cars.
What other points does the 2016 inheritance tax reform cover beyond the relief provisions?
The agreement also includes provisions on preliminary discounts for family businesses, on the optional relief for administrative assets, and on the requirements for tax deferrals. In addition, measures to combat abuse were introduced.