Why Germany’s Inheritance Tax Dispute Concerns Swiss Families
Germany’s Constitutional Court is reviewing tax exemptions worth billions of euros to business heirs, with implications for families whose wealth and business interests extend across the Swiss border.
Germany waived €3.7 billion in inheritance tax for just 34 business heirs in 2025. The provision that allowed these exemptions is now under review by the country’s Federal Constitutional Court, which is examining whether the preferential treatment of inherited businesses complies with constitutional rules on equal taxation.
At issue is how governments can tax large inheritances without forcing families to sell businesses to pay the bill. Germany has long protected qualifying business assets from inheritance tax, arguing that heavy tax demands could leave heirs with little choice but to borrow, cut investment or sell parts of a company.
The proceedings are also relevant to Switzerland, where 338’584 German citizens were permanent residents at the end of 2025, making them the country’s second-largest foreign nationality group. Although the two countries have different inheritance-tax systems, a bilateral treaty governs their taxing rights when estates cross the border. German families living in Switzerland may therefore remain liable for inheritance tax in Germany, depending on their circumstances.
Why Germany Gives Business Heirs Tax Relief
German inheritance-tax law treats qualifying business assets differently from private wealth. People who inherit securities, property or other personal investments generally pay tax according to the value received and their relationship to the deceased. Those inheriting a family business may qualify for substantial exemptions.
The rules are intended to protect companies that hold much of their value in factories, machinery, patents or commercial property rather than cash. A business may be worth hundreds of millions of euros but generate nowhere near enough income to cover a large inheritance-tax bill. Heirs who cannot pay from their own resources may have to borrow against the company, reduce investment or sell assets.
Under the current system, heirs receiving qualifying business assets worth more than €26 million can apply for additional relief through the Verschonungsbedarfsprüfung, a needs-based assessment. If they show that their available assets are insufficient to pay the inheritance tax, the authorities may waive the liability entirely. There is no statutory upper limit on the value of business wealth that can qualify.
In 2025, just 34 heirs received €3.7 billion in tax waivers under this provision. Hamburg’s finance senator told the court that the arrangement had cost the city €857 million in forgone revenue since its introduction in July 2016.
Critics argue that the rules favour wealthy business owners over those inheriting private assets. They also question whether families can structure their wealth to qualify for tax exemptions they would not otherwise receive.
Business representatives see the matter differently. Rainer Kirchdörfer of the Stiftung Familienunternehmen argues that the value of a company lies in its machinery, patents and buildings, not in money sitting in a bank account. The Federation of German Industries (BDI) warns that higher inheritance taxes would have to be paid from company profits, leaving less money for investment.
A Constitutional Case That Could Change Succession Plans
The case began with a complaint from a man who inherited securities and property from his aunt and faced an inheritance-tax bill of approximately €50’000. He argues that giving business heirs more favourable tax treatment violates Germany’s constitutional principle of equal taxation.
The Constitutional Court has previously accepted that protecting businesses and employment can justify inheritance-tax exemptions. Judges must now decide whether the existing relief goes too far, particularly when heirs of very large businesses can avoid taxes that recipients of smaller private estates must pay.
The dispute also concerns residential property. Under current tax rules, businesses owning more than 300 apartments can qualify for tax relief, although the Federal Fiscal Court ruled in 2017 that the number of apartments alone should not determine eligibility. Someone inheriting a few privately owned flats may face a substantial tax bill, while an heir receiving a much larger property portfolio could qualify for an exemption.
Germany’s Constitutional Court is expected to deliver its judgment in the coming months. It may uphold the existing rules, identify constitutional problems or require lawmakers to amend particular provisions. Until then, the current arrangements remain in force.
Any changes could affect families planning to pass their companies to the next generation. If tax relief is reduced, heirs may need to raise more money to pay the bill, potentially delaying the transfer, increasing borrowing costs and leaving less money for investment in the business.
How Switzerland Taxes Inherited Wealth
Switzerland has no federal inheritance tax. Instead, cantons set their own rates, exemptions and rules for beneficiaries, producing considerable differences across the country. Schwyz and Obwalden levy no inheritance tax. Elsewhere, spouses and registered partners are generally exempt, while children and grandchildren usually benefit from exemptions as well, although exceptions remain. More distant relatives and unrelated beneficiaries may face substantially higher rates, depending on the canton.
For families passing wealth directly to their children, inheritance taxes in Switzerland can therefore be lower than in Germany. Matters become more complicated when a family owns companies, investments or property in both countries. Living in Switzerland does not automatically exempt an entire estate from German inheritance tax. German law and the bilateral tax treaty determine which assets may still be taxed in Germany, taking into account where the deceased previously lived, where the heirs reside and what assets they inherit. Families planning an inheritance must therefore consider their ties to both countries, not just where they currently live.
Why German Families in Switzerland May Still Face German Tax
Germany and Switzerland signed an inheritance-tax treaty in November 1978 to allocate taxing rights between the two countries and prevent double taxation. The agreement covers residence, immovable property, business assets and circumstances in which both governments may have grounds to tax an estate.
One provision is particularly relevant to German entrepreneurs who move to Switzerland later in life. Under Article 4, Germany may retain taxing rights where the deceased maintained a permanent home in Germany for at least five years during the ten years before leaving and dies within the period specified by the treaty after departure. Exceptions apply in certain circumstances, including some moves made for genuine employment or marriage to a Swiss citizen. Another provision addresses people who are considered Swiss residents but have also maintained a permanent home in Germany for at least five years at the time of death. Germany may also retain taxing rights in certain cases where beneficiaries live in Germany. German property and business interests can create further tax obligations regardless of where other family assets are held.
A family that has lived in Switzerland for several years may consequently find that German inheritance-tax rules still apply to part of its estate. The outcome depends on the residence history of the deceased and beneficiaries, the ownership and location of assets and the treaty provisions governing each situation. The agreement also provides mechanisms to prevent the same inheritance from being taxed twice without appropriate relief.
What Family Offices Need To Review
The German court proceedings create further uncertainty for families planning to pass substantial business holdings to the next generation. Succession plans based on today’s tax exemptions may need to change if lawmakers amend the rules.
Families need to consider how much of their wealth is tied up in operating businesses rather than cash or investments they can readily sell. A company valued at €100 million may generate enough income to support its owners but not enough to pay a large inheritance-tax bill at short notice.
Families expecting heirs to borrow against company shares must assess how much debt the business can afford, whether dividends will cover interest payments and how additional borrowing could affect future investment. Selling assets may raise cash more quickly, but it can also reduce earnings or leave the family with less control over the company.
Advisers handling cross-border estates must establish which country can tax each asset. The owner’s residence history, the ownership of companies and property, the beneficiaries’ locations and the relevant tax treaties all affect the final tax bill. Families also need to review arrangements made years earlier to check whether they still qualify for the exemptions on which their succession plans were based.
Germany’s Constitutional Court has not yet decided whether the current business exemptions comply with the constitution. Its ruling could affect how wealthy families transfer ownership and how much money they need to set aside for inheritance taxes.
German families with ties to Switzerland should establish which tax rules apply to their estate before deciding when and how to transfer ownership. Living in Switzerland may change their tax position, but it does not necessarily end their obligations in Germany.
