Inheritance tax law provides for extensive exemptions from inheritance tax for business assets. Now, a ruling by the Federal Fiscal Court (BFH) has caused a stir in family-run businesses in the hospitality industry: the court has stated, almost in passing, that these tax advantages do not apply to accommodation and, in some cases, restaurant businesses.
Inheritance tax advantages for business assets
The German Inheritance and Gift Tax Act (ErbStG) stipulates in §§ 13a and 13b ErbStG that certain business assets are favoured when assessing inheritance tax. This makes it possible for the tax office to set tax relief of 85% or even 100%.
This provides immense financial relief for heirs of these favoured business assets and, especially in the case of family businesses, ensures that these businesses do not collapse financially under the inheritance
No privileges for ‘administrative assets’ in inheritance tax
However, these privileges do not apply to quasi-risk-free, return-oriented administrative assets. With the regulations on the inheritance tax privileges for business assets, the legislator wanted to favour productive assets. On the other hand, assets that primarily serve to generate risk-free returns and usually neither create jobs nor additional economic benefits should be excluded from the preferential treatment (see BTDrucks 16/7918, pp. 35-36).
A lot often depends on the classification as tax-privileged business assets or ‘harmful administrative assets’ for heirs – especially when it comes to family-run accommodation businesses.
A multi-storey car park as privileged business assets when assessing inheritance tax?
In principle, ‘land and parts of land leased to third parties for use’ are considered harmful administrative assets and are therefore not favoured with regard to inheritance tax.
And yet there are legal exceptions to this principle, e.g. for the rental of residential space by housing companies, the leasing of space to sell their own products or the leasing of land used for agricultural
But is a car park a tax-privileged business asset that can benefit from tax relief? No, the BFH ruled. The car park is not a favoured administrative asset for inheritance tax purposes. The court did not see any grounds for an exception (BFH, judgment of 28 February 2024, case reference: II R )
What does this have to do with accommodation establishments?
In this case, however, the BFH did not only comment on the car park in dispute, but also on accommodation establishments and rooms in restaurants. These businesses are also not covered by the inheritance tax relief provided for in Section 13a ErbStG.
By implication of its findings on the car park, no other ‘transfer of property to third parties’, such as accommodation (hotels, guest houses, campsites) and rooms in restaurants, can benefit from tax relief.
Financial ruin due to inheritance tax for family-run businesses in the accommodation industry?
If this ruling is applied in practice, the operation of numerous hotels, guesthouses and campsites would be jeopardised when it comes to generational change due to the high financial burden of inheritance taxes.
In this context, the ruling seems somewhat incomprehensible with regard to accommodation businesses, since so far ‘productive (business) assets’ have been exempt from inheritance tax.
For example, a family-owned company produces fabrics or hardware. If the factory/production site becomes part of the estate – i.e. passes to the next generation upon inheritance – and the company/production continues, the inheritance tax relief applies. The same applies in agriculture and forestry.
This is now set to change for accommodation providers and the hospitality industry, which, according to this ruling, are to be treated the same as purely profit-oriented administrative assets. However, this does not appear appropriate and also fails to do justice to the purpose of the regulations for the relief of business assets.
The hospitality industry, including accommodation providers, has a completely different significance in terms of labour market policy and the economy, which should be taken into account with inheritance tax relief for family businesses.
Is the catering industry also affected?
As things stand at present, it depends on how exactly the catering business operates. Ultimately, the decisive factor is whether a restaurant ‘leaves parts of the property to third parties’.
Those who only serve food and drink in a family-owned property, i.e. allow guests into their rooms and serve them, can breathe a sigh of relief.
However, it could become problematic if restaurant operators have something like a ballroom or separate rooms and rent these rooms out for celebrations such as weddings, birthdays, etc. Here, if one interprets the case law of the Federal Fiscal Court narrowly, one must probably also assume that such catering establishments are no longer privileged for inheritance tax purposes when the property is inherited by the next generation.
And what about restaurants that rent out their rooms to guests for private events or parties while remaining open for business? In view of this ruling, the situation here could also become tight in terms of inheritance tax law…
Since the latter model in particular is common practice in the restaurant business, the BFH ruling would probably also have a significant impact on family-run restaurant businesses with their own property if this property is transferred to the next generation and continued to be operated.
Clear legal regulation & non-application decree
Lawmakers and ministries should take action to ensure that family businesses that are now to be transferred to the next generation by way of inheritance or gifting are not destroyed by the burden of inheritance tax. On the one hand, the law would have to be formulated more clearly so that it is unambiguous which businesses are favoured and which are not. On the other hand, the Federal Ministry of Finance would have to ensure that this case law is not applied for the time being by issuing a non-application decree, and that the previous guidelines can continue to be applied.
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Dr. Christopher Arendt
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Managing Director of ACCONSIS
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