Europe has created a common legal framework for cross-border inheritance, but the taxation of inherited wealth remains a national affair. While some countries impose substantial taxes on large estates, others have abolished inheritance duties altogether. Germany now stands at the centre of this debate, as its Constitutional Court examines whether generous exemptions for family-owned businesses are compatible with the principle of equal treatment. For foreign investors, international families and business owners with assets in several countries, the dispute reveals a broader European problem: the transfer of wealth is becoming increasingly international, while the rules governing it remain fragmented.
Across Europe, one of the largest transfers of private wealth in modern history is taking shape. Property, business interests and financial assets accumulated over decades are passing from one generation to the next. Yet the fiscal consequences of these transfers depend heavily on where the deceased lived, where the assets are located and who inherits them. In some European countries, substantial inheritances can pass to the next generation with little or no direct inheritance tax. In others, the same transfer may trigger significant tax liabilities, particularly where the beneficiaries are not close relatives.
The differences reflect more than competing fiscal policies. They reveal fundamentally different ideas about property, family responsibility, economic opportunity and the role of the state. Supporters of inheritance taxation regard it as a means of moderating the concentration of wealth and improving equality of opportunity. Critics argue that inherited assets often represent accumulated, previously taxed earnings and that additional taxation can weaken private investment, discourage long-term savings or threaten the continuity of family-owned businesses.
Germany offers an unusually revealing example of this conflict. On 12 and 13 October 2026, the Federal Constitutional Court in Karlsruhe held hearings in two separate proceedings concerning the country’s inheritance and gift tax system. One case challenges the extensive tax privileges available to beneficiaries of business assets; the other concerns the constitutional authority to regulate inheritance taxation at federal level. Together, they have renewed a political controversy that reaches well beyond Germany’s borders.
One European Market, Many Different Inheritance Taxes
The European Union has made considerable progress in simplifying cross-border succession. Under EU Regulation No. 650/2012, applicable to deaths occurring from 17 August 2015, the law governing an international succession is generally determined by the deceased’s last habitual residence. Individuals may alternatively choose the law of a country whose nationality they hold, including the law of a non-EU country. The regulation also introduced the European Certificate of Succession, which helps heirs, executors and estate administrators establish their rights in other participating Member States.
The system is particularly relevant to increasingly mobile European families. A German citizen living in France, owning an apartment in Spain and holding business interests in Italy does not necessarily need separate substantive succession regimes for every asset. In principle, a single national law can govern the succession as a whole. However, the regulation does not apply in Denmark or Ireland, and questions relating to property registration, matrimonial property regimes and certain corporate matters remain subject to separate rules.
More importantly, the European framework does not harmonise inheritance taxation. Member States retain responsibility for determining whether inherited wealth should be taxed, how taxable assets are valued, which exemptions apply and who must pay. A choice of German succession law, for example, does not automatically mean that only German inheritance tax will apply. The legal entitlement to inherit and the fiscal consequences of inheritance are two distinct questions.
The differences between national systems are considerable. France maintains a progressive inheritance tax, with children generally entitled to an allowance of €100,000 per parent and rates on taxable transfers in the direct line rising to 45 per cent. Italy follows a significantly different approach, applying a four per cent rate to transfers to spouses and direct descendants on the amount exceeding a €1 million allowance per beneficiary. Spain operates a system in which regional rules can substantially affect the final tax burden, making the relevant autonomous community an important consideration even in cases involving non-residents.
The United Kingdom, although no longer an EU member, remains relevant to international estate planning. Its inheritance tax is generally charged on the estate rather than separately on each beneficiary, with a standard rate of 40 per cent above the applicable thresholds and subject to exemptions and reliefs. Since April 2025, the territorial scope of the tax has also depended on new long-term residence rules, an important consideration for internationally mobile families.
Other countries have taken a more radical position. Austria abolished its inheritance and gift taxes in 2008, although transfers of real estate may still attract property-transfer taxation. Sweden abolished inheritance and gift taxation earlier, while Denmark continues to levy estate duties under a different structure, generally applying a 15 per cent duty to qualifying transfers to close relatives above an exempt amount, with additional charges for many other beneficiaries.
The result is not a simple division between high-tax and low-tax countries, but a collection of systems shaped by different historical and political choices. Tax rates alone offer an incomplete basis for comparison. Exemptions, valuation rules, family relationships, business reliefs and residence requirements may have a greater influence on the amount ultimately paid than the headline rate.
This fragmentation creates opportunities for international estate planning, but also legal uncertainty. Individuals who own property or businesses in several countries may face overlapping reporting requirements, different valuation methods and, in some circumstances, competing inheritance-tax claims. Bilateral treaties and domestic foreign-tax credits can mitigate double taxation, but protection is neither universal nor automatic.
Germany’s Billion-Euro Question
Germany’s inheritance and gift tax system is particularly contentious because it combines progressive taxation with substantial relief for certain business assets. Personal allowances currently amount to €500,000 for spouses and registered civil partners, €400,000 for children and generally €200,000 for grandchildren. More distant relatives and unrelated beneficiaries typically receive substantially smaller allowances. Depending on the value of the taxable acquisition and the relationship between the parties, statutory tax rates range from seven to 50 per cent.
For qualifying business assets, however, a different regime applies. Transfers of eligible business property with a value of up to €26 million can generally benefit from an 85 per cent exemption. Under stricter conditions, including requirements relating to continued ownership and employment, the relief can reach 100 per cent. Above the €26 million threshold, special rules apply. Beneficiaries may seek a gradually reduced exemption or request a formal assessment of their ability to pay the tax from their legally defined available assets.
The economic rationale is straightforward. A family company worth €50 million does not necessarily have anything approaching that amount in liquid funds. Its value may be tied up in manufacturing facilities, property, equipment and long-term investments. Requiring heirs to meet a substantial immediate tax liability could force them to borrow heavily, sell shares or withdraw capital from the business. In an economy where family-controlled enterprises play an important role in employment and industrial production, such risks cannot simply be dismissed.
Yet the present system raises questions about proportionality. If the state exempts business assets to preserve economic activity, should it offer essentially the same protection to very large private business fortunes? At what point does legitimate consideration of liquidity become an unjustified fiscal privilege?
Recent figures illustrate the scale of the issue. According to Germany’s Federal Statistical Office, inheritance and gift tax assessments reached €21.4 billion in 2025, an increase of 60.8 per cent over the previous year. Separately reported data show that approximately €3.7 billion in taxes were waived under the special needs-based relief procedure for large business transfers. The latter amount consisted primarily of relief granted in connection with gifts made during the donor’s lifetime.
The figures should not be interpreted as evidence that abolishing the exemptions would automatically generate an additional €3.7 billion in government revenue. Changes in tax law influence the timing, organisation and location of wealth transfers, and tax assessments, actual receipts and subsequently granted relief are not interchangeable statistical categories. Nevertheless, the magnitude of the exemptions demonstrates why their constitutional justification has become a major political issue.
The Constitutional Court has addressed similar questions before. In December 2014, it ruled that aspects of the then-existing business-property exemptions violated Germany’s constitutional principle of equal treatment. The subsequent reform, enacted in 2016, introduced new mechanisms intended to restrict excessive relief for large transfers. The current proceedings examine whether those mechanisms satisfy the constitutional requirements.
The dispute is also politically sensitive for Chancellor Friedrich Merz’s governing coalition. The Social Democratic Party has proposed a substantial restructuring of inheritance taxation, including broader personal allowances, a separate business allowance and progressive taxation of larger transfers, accompanied by extended payment periods for qualifying businesses. The Christian Democratic Union has placed greater emphasis on protecting family-owned companies from additional financial burdens.
Both positions reflect legitimate concerns, but neither resolves the underlying conflict on its own. The preservation of productive assets does not automatically require permanent tax exemption, just as the pursuit of equal taxation does not remove the need to consider liquidity, investment and employment.
The Problem of Family Businesses
The taxation of inherited business assets is one of the most difficult issues in European wealth-transfer policy. Many established companies are economically valuable without being highly liquid. The transfer of ownership may generate a substantial taxable event even though no cash has changed hands. For an heir who wishes to continue operating the business rather than sell it, the tax liability can create a financing problem at precisely the moment when ownership and management responsibilities are changing.
Several European countries recognise this dilemma through special reliefs for qualifying business transfers. The OECD has documented the widespread use of such arrangements, including exemptions, reductions in taxable value and conditions linked to ownership continuity or employment. The rationale is understandable, but the measures can also create differences in the treatment of otherwise comparable fortunes, depending on how wealth is held.
There is a further economic complication. Conditions designed to protect employment and preserve ownership can discourage necessary corporate restructuring. A family business facing technological disruption or declining demand may need to change its operating model, sell underperforming divisions or reduce its workforce. Tax rules that penalise such adjustments may inadvertently weaken the enterprise they were intended to protect.
An alternative is to distinguish the level of taxation from the timing of payment. A tax can be legally due without necessarily requiring an immediate transfer of the entire amount. Instalment arrangements, deferred payments and appropriately designed financing mechanisms can reduce liquidity pressure while preserving the principle that inherited wealth should be taxed according to consistent rules.
This distinction lies at the heart of a recent proposal by the Munich-based ifo Institute. In January 2026, economists Clemens Fuest, Andreas Peichl and Lisa Windsteiger advocated a simplified inheritance tax based on a relatively low uniform rate of approximately ten per cent, applied broadly across asset classes. High personal allowances and generous deferral arrangements would provide protection for businesses and other illiquid assets, while many existing special privileges would be removed.
The proposal challenges both sides of Germany’s political debate. Advocates of stronger taxation would have to explain whether a relatively low uniform rate sufficiently addresses wealth inequality. Defenders of existing business exemptions would need to show why extensive relief remains necessary if the burden can be reduced through lower rates and longer payment periods.
The model would not eliminate political disagreement. Its significance lies in making the choices more transparent: how much should inherited wealth contribute to public finances, and under what conditions should that contribution become payable? These are related questions, but they need not be answered through the same legal instrument.
What International Families and Investors Need to Consider
For foreign readers, Germany’s inheritance-tax debate has practical implications beyond the constitutional dispute itself. German inheritance and gift taxation is not determined solely by citizenship or by the location of the assets. Under German law, worldwide transfers may fall within the scope of unlimited inheritance-tax liability if the deceased, donor or recipient meets the relevant domestic-residence criteria. Certain German citizens may also remain within the relevant definition after leaving the country, generally for a period of up to five years under the statutory conditions.
Conversely, even where neither party is regarded as a German resident for inheritance-tax purposes, certain assets situated in Germany may remain taxable under the rules on limited tax liability. German real estate is an obvious example. The consequences for an international family can therefore depend on the residence of several individuals, the location and legal classification of assets, and the nature of the relationship between the transferor and the beneficiary.
A foreign national inheriting German property should not assume that being resident abroad automatically eliminates German tax obligations. Equally, a German citizen living elsewhere in Europe should not assume that Germany has an exclusive right to tax the inheritance. Where more than one jurisdiction asserts taxing rights, the applicable bilateral treaty and the availability of domestic foreign-tax credits become central to the analysis.
Germany has concluded specific inheritance or estate-tax treaties with a limited number of countries, including France, Denmark, Switzerland and the United States. Such agreements differ from the far more numerous treaties dealing with income taxation. Consequently, an arrangement that successfully prevents double taxation of dividends or business profits does not necessarily resolve competing claims over an inheritance.
International succession also raises questions of governance and business continuity. In family-controlled enterprises, inheritance may affect voting rights, shareholder agreements, management appointments and the division of ownership between beneficiaries who live in different countries. These issues are not solved merely by establishing which national succession law applies. Company-law provisions, corporate constitutions and applicable tax rules must be considered alongside wills and estate-planning arrangements.
The same applies to internationally held real estate and financial assets. The European Certificate of Succession may simplify the recognition of an heir’s legal status across participating jurisdictions, but it does not eliminate national registration requirements or settle the taxation of the underlying assets. For complex estates, coherent planning therefore requires legal, financial and tax advice that considers the entire cross-border structure rather than treating each jurisdiction in isolation.
Europe’s Unresolved Question of Wealth and Opportunity
The European debate over inheritance taxation is ultimately a debate about the relationship between private property and economic opportunity. As wealth becomes increasingly concentrated in residential property, financial assets and privately held businesses, inheritance plays a significant role in determining the economic position of younger generations. The OECD has argued that better-designed inheritance taxation could contribute to reducing inequalities in wealth accumulation, although the effectiveness of such policies depends heavily on their structure and implementation.
At the same time, governments must consider the consequences for investment, entrepreneurship and business continuity. Family ownership can support long-term decision-making and corporate independence, particularly in economies with substantial industrial and medium-sized business sectors. A tax system that places excessive immediate financial pressure on succession may weaken those advantages. Yet a system that grants extensive exemptions to owners of large business fortunes while taxing comparable privately held wealth risks undermining confidence in fiscal fairness.
Germany’s current constitutional proceedings bring that contradiction into unusually sharp focus. The judges in Karlsruhe will not decide whether inheritance taxation is economically desirable or politically fair in every respect. Their task is to determine whether the statutory distinctions comply with the German constitution. The broader political responsibility will remain with lawmakers.
For Europe, the lesson extends beyond one country’s tax legislation. The single market has made the ownership, management and transfer of assets increasingly international, but inheritance taxation remains firmly embedded in national political choices. That divergence may be sustainable, provided the rules are transparent, predictable and sufficiently coordinated to avoid unnecessary legal and fiscal conflicts.
The central question is not whether inherited wealth should always be taxed or always protected. It is whether European countries can establish rules that preserve productive businesses, respect legitimate family interests and distribute tax burdens according to principles that remain defensible as fortunes grow. Germany’s constitutional debate is a national dispute, but the dilemma it exposes is unmistakably European.
Editorial sources: European Commission, Successions and Wills; Regulation (EU) No. 650/2012 on international succession; OECD, Inheritance Taxation in OECD Countries (2021); German Federal Constitutional Court, proceedings 1 BvR 804/22 and 1 BvF 1/23, hearings of 12–13 October 2026; German Federal Statistical Office, inheritance and gift tax statistics for 2025, published 26 August 2026; German Inheritance and Gift Tax Act, including Sections 2, 13a, 16, 21 and 28a; ifo Institute, inheritance tax reform proposal, 22 January 2026; official tax guidance issued by the French, Italian, Spanish, Austrian and UK authorities. Legal and statistical information as of 14 October 2026.
