The five-year retention period for tax relief on business assets continues after the death of the original heir, meaning that a sale by the subsequent heirs within the period also costs the tax benefit.

Business assets are subject to favourable inheritance tax treatment. However, the prerequisite for this is that the heir does not sell the business assets for at least five years. However, if the heir dies within this period, the question arises as to whether the retention period from the first inheritance ends and a sale by the subsequent heirs does not result in the loss of the tax exemption from the original inheritance. The law provides for the lapse only in the case of a sale by the acquirer (i.e. heir or donee). Nevertheless, the Münster Fiscal Court is of the opinion that the five-year period continues to run even after the death of the heir and that a sale thus continues to be tax-damaging. However, an appeal against the ruling has been filed with the Federal Fiscal Court because there is still no supreme court ruling on this issue.

The participation in a corporation via an asset-managing partnership is not tax-privileged.

In order to be able to claim the inheritance tax benefits for business assets for shares in a corporation, it is necessary under both the old and the new law that the donor or testator had a direct interest in the company of more than 25 % of the nominal capital. The Federal Fiscal Court has now ruled that the testator or donor must have been a shareholder of the corporation under civil law for this purpose. It is therefore not sufficient if the shareholding is only held via an asset-managing partnership, regardless of whether the partnership has private assets or business assets for income tax purposes.

The popular cash GmbH can no longer be used for the tax-free transfer of larger sums of cash. There is also a new regulation for the payroll guarantee.

With two amendments to the Inheritance Tax Act, the Mutual Assistance Directive Implementation Act closes popular loopholes in inheritance and gift tax.

"Cash-GmbH": Until now, it was quite easy to give away cash in any amount practically tax-free. This arrangement, which became known as the "Cash-GmbH", was possible because until now cash was not considered administrative assets and thus also fell under the tax exemption for business assets. Now cash and other financial resources are only considered administrative assets to the extent necessary for business operations or under certain conditions. This regulation applies to all gifts and inheritances after 6 June 2013.

Payroll guarantee: Another change in inheritance tax restricts arrangements to circumvent the payroll guarantee. According to this, the employees and payrolls of subordinate companies are to be taken into account in accordance with the respective shareholding in these companies. This regulation also applies to all gifts and inheritances after 6 June 2013.

The cut-off date regulation for the equality under inheritance law of non-marital children born before 1 July 1949 is constitutional.

According to the original version of the Civil Code, illegitimate children were only entitled to a statutory right of inheritance or a compulsory portion vis-à-vis their mother and maternal relatives. There was no relationship between illegitimate children and their father. Even though this regulation has long since been changed, a transitional regulation was created when it was amended in 1970, according to which the old law continued to apply to children born before 1 July 1949.

The Federal Constitutional Court has had to review this regulation several times and considered it to still be constitutional. However, the European Court of Human Rights considered it to be a violation of the European Convention on Human Rights, whereupon the transitional regulation was amended in 2011 with the Second Act on Equal Treatment of Inheritance Rights. However, for inheritance cases before 29 May 2009, where the estate had not passed to the state, the cut-off date of 1 July 1949 remained.

Several affected heirs appealed against this regulation to the Federal Constitutional Court, but failed there with their request. The court did not accept the constitutional complaints for decision, because it considers the transitional regulation of the Second Inheritance Law Equality Act to be constitutional. This is because the new transitional regulation no longer differentiates primarily according to a personal characteristic (date of birth), but according to a random, external event (date of inheritance), so that the unequal treatment is now no longer so great. Moreover, it is in line with the case law of the Federal Constitutional Court that the legislature does not have to retroactively eliminate an unconstitutional legal situation if the constitutional legal situation had not been sufficiently clarified so far. This must apply all the more in a case such as this, in which the constitutionality of the previous legal situation has been expressly confirmed several times by the Federal Constitutional Court.

Family homes are exempt from inheritance tax - but only if they continue to be used by the heir immediately after the inheritance. Cogent reasons also do not allow for temporary renting.

The inheritance tax exemption for a family home basically presupposes that the property is used by the heir himself from the beginning. There is no provision for an exception for compelling reasons that would allow a temporary letting or other third-party use. With this decision, the Münster Fiscal Court denied a lecturer tax exemption for his parents' house. After the death of his parents, he could not directly use the house himself because he had already committed himself to taking up residence near the university before the inheritance when he was appointed as a university professor. However, this professional impediment to direct self-use left the tax court unimpressed. However, the court allowed an appeal to the Federal Fiscal Court.

The tax office only has to accept a claim of the heir against the deceased as a liability of the estate if the deceased was actually economically burdened by the claim.

In order for a claim of the heir against the deceased to be recognised as a liability of the estate, it must have economically burdened the deceased at the time of death, according to the Saarland Fiscal Court. This is not the case, for example, if the claim is already time-barred or was never asserted by the heir against the testator.

Due to the doubts of the Federal Fiscal Court about the constitutionality of inheritance tax, new inheritance tax assessments are only issued provisionally until a decision of the Federal Constitutional Court is available.

The Federal Fiscal Court has submitted its concerns about the constitutionality of the Inheritance Tax Act to the Federal Constitutional Court. In view of this review of the law by the Constitutional Court, the tax authorities have ordered that all new notices of inheritance tax be issued only provisionally. With the provisional note in the notice, an objection is therefore unnecessary to keep the notice open in case the court should even retroactively declare the law unconstitutional.

The Federal Fiscal Court considers the current Inheritance Tax Act to be unconstitutional because the benefits it contains for business assets are not justified.

The Federal Fiscal Court has used the complaint of a nephew about the tax rate for tax class II to raise its fundamental concerns about the inheritance tax reform that has been in force for almost four years. In particular, the numerous privileges for business assets are a thorn in the side of the Federal Fiscal Court. In a 65-page decision, the Federal Fiscal Court has therefore submitted the question to the Federal Constitutional Court as to whether there is not an "unconstitutional excess of preferential treatment". The Federal Fiscal Court put forward several arguments:

Continuation of operations: The judges do not believe in the premise that inheritance tax generally jeopardises the continuation of a business. It goes far beyond what is constitutionally permissible to exempt business assets without regard to the value of the acquisition and the capacity of the acquirer. This applies in particular if the funds required for inheritance tax are available or can be procured.
Job preservation: Justifying advantages for business assets with job preservation is also not justified because more than 90 % of all businesses do not have more than 20 employees and therefore do not fall under the "job clause". In addition, the law allows for arrangements which, even in the case of larger businesses, in many cases ensure that the development of the wage totals and thus the preservation of jobs are not decisive for the granting of the tax relief.

Administrative assets: The Federal Fiscal Court is particularly critical of administrative assets. The legal regulations would make it possible to acquire an unlimited amount of assets not required for business purposes, which do not fulfil the purpose of preferential treatment, without or with only a low tax burden. It is largely at the discretion of the testator or donor to turn private assets into tax-privileged business assets.

Cash GmbHs: Cash claims such as demand deposits, savings deposits and time deposit accounts at credit institutions are not part of the administrative assets. This means that a share in a GmbH or GmbH und Co. KG whose assets consist exclusively of such receivables (so-called "cash GmbH") can be given away or inherited without incurring inheritance tax. After all, this point of criticism by the Federal Fiscal Court will soon be settled anyway, because at the turn of the year the requirements for administrative assets are to be changed accordingly.

Rule Verschonung: The tax concessions for business assets, together with numerous other exemptions (rate limitation, tax exemption of family homes, etc.) and the tax allowances, mean that only a small proportion of the circumstances that are taxable in principle are actually burdened with inheritance tax. Therefore, according to the Federal Fiscal Court, tax exemption is the rule and actual taxation the exception.

The Federal Fiscal Court does not present the many arguments because it considers a higher taxation of business assets to be imperative. Rather, it considers the entire inheritance tax law to be problematic because it would lead to unconstitutional taxation. This would violate the right of taxpayers who could not claim the benefits to be taxed equally, in accordance with their ability to pay and in a consistent manner.

In contrast, the Federal Fiscal Court does not consider the plaintiff's actual concern, namely that the same tax rates apply to tax class II (including siblings, nephews and nieces) and tax class III (third parties), to be unconstitutional. The judges are of the opinion that the legislator is not constitutionally obliged to place heirs in tax class II in a better position than heirs in tax class III. The constitutionally guaranteed protection of marriage and family only refers to the community of parents and children, but not to family members in the broader sense.

It is difficult to predict how the further proceedings before the Federal Constitutional Court will turn out. In any case, it is very unlikely that the court will retroactively declare the entire inheritance tax law unconstitutional. Those who still want to be sure can file an objection against the inheritance tax assessment and apply for the proceedings to be suspended. The tax authorities have already instructed the tax offices to issue new notices with a note of provisional effect, which makes an appeal in these cases unnecessary.

However, should the court share the concerns of the Federal Fiscal Court, it will certainly call on the legislator to make improvements for the future. Benefits that have already been granted will not be retroactively cancelled under any circumstances, because the law prohibits the amendment of tax assessments to the detriment of taxpayers on the basis of a decision by the Federal Constitutional Court. However, it may be worthwhile to think about a timely transfer of assets in case the Federal Constitutional Court demands the abolition of benefits for the future.

Despite the recently introduced option to unlimited tax liability, the Düsseldorf Fiscal Court considers the tax-free allowance for persons with limited tax liability to be inappropriately low.

The Düsseldorf Fiscal Court has serious doubts as to whether the inheritance tax allowance for limited taxpayers of only 2,000 euros is compatible with EU law. At first glance, the problem seemed to have been solved with a change in the law last year, because now limited taxpayers can also be taxed like heirs with unlimited tax liability if they wish and thus claim the significantly higher tax allowances for "tax residents". But that is not what the plaintiff heiress wanted here; to her, only the tax-free amount seemed unreasonably low compared to the tax-free amount of 400,000 euros that she would have been entitled to if she had exercised her right to choose. In a similar case, the court had already asked the European Court of Justice for a preliminary ruling and therefore also granted this heiress a stay of execution: The tax-free amount of 2,000 euros was disproportionately low compared to the tax-free amount of 400,000 euros granted to a national.

The exclusion of illegitimate children born before 1 July 1949 from succession for inheritance cases before 29 May 2009 remains in force.

Until 30 June 1970, an illegitimate child and his or her father were not considered related, which meant that the child also had no legal right of inheritance. Although the law was amended in 1970 for all children who were not yet of age at that time, conversely, illegitimate children born before 1 July 1949 continued to be excluded from inheritance. However, following a complaint, the European Court of Human Rights found that this regulation impaired the right to respect for their family life, which was also due to illegitimate children, and was discriminatory.

Due to this decision of 28 May 2009, the German legislator amended the law accordingly in April 2011 and repealed this cut-off date rule retroactively for all inheritance cases occurring after 29 May 2009. For inheritance cases up to 28 May 2009, however, the exclusion of non-marital children born before 1 July 1949 from the statutory succession continues to apply. A person affected by this has filed a lawsuit against this and has now failed in the last instance before the Federal Supreme Court with his lawsuit.

The Federal Supreme Court does not consider the maintenance of the exclusion rule for old cases to be a violation of the Basic Law because it is justified by factual reasons. In the opinion of the Federal judges, the German legislator was entitled to attach great importance to the trust of testators and their previous heirs, which is protected by the Basic Law, in the maintenance of the then valid regulation.

Only with the decision of the European Court of Human Rights that this regulation violated the European Convention on Human Rights was this trust in an exclusion of illegitimate children of a father from his inheritance no longer justified. Furthermore, the Federal Court of Justice states that it can be inferred from the case law of the European Court of Human Rights that the legislature was not obliged to change the legal situation even for the time before the decision of 28 May 2009 was pronounced.