Transfer of business assets: Tax benefits & potential reforms

The transfer of business assets is a central issue in business succession and tax advisory. Under German inheritance and gift tax law, substantial tax benefits are granted to ensure the continuation of medium-sized companies and to preserve jobs. However, political reform proposals and a pending case before the Federal Constitutional Court may soon significantly restrict these privileges.

In this article, we explain the current regulations, outline the political developments, and provide practical recommendations for entrepreneurs.

What qualifies as “favored business assets”?

Favored business assets include, in particular, sole proprietorships, shares in partnerships, and certain shares in corporations. Agricultural and forestry assets can also be classified as favored. In addition to the well-known standard and option-based reliefs, there are numerous detailed rules and structuring possibilities that are crucial in succession planning.

Tax-free transfer: Standard relief and optional relief

The transfer of business assets is subject to significant tax relief, but these are tied to specific conditions:

• Under the standard relief (Regelverschonung), 85 % of the transferred business assets can be transferred tax-free (for both gift and inheritance tax). In addition, an extra deduction of €150,000 is granted.
• Conditions include:
   • A minimum retention period of 5 years and ongoing operation of the business.
   • The wage-sum regulation: For companies with more than five employees, a certain wage sum must be reached. During the retention period, the cumulative wages generally must not fall below 400 % of the original reference wage sum. The reference wage sum is based on the average wage sum of the past five years.
   • The portion of management (non-operating) assets – e.g. leased real estate, certain participations or securities – must not exceed a threshold (e.g. 90 %) of the business assets.

If these conditions are not met, the full tax exemption may be jeopardized.

Alternatively, an irrevocable application for a full tax exemption (optional relief / Optionsverschonung) can be made. For this, stricter requirements apply:

• The transferred management (non-operating) assets must not exceed 20 % of the business value.
• A longer retention period — 7 years — is required, as well as a stricter wage-sum regulation (generally 700 % of the reference wage sum).

Besides the standard and optional reliefs, many additional detail rules and structuring opportunities are of great importance for optimized succession planning.

A particularly relevant issue in practice is the so-called option trap: if the declaration for full relief is made and subsequently the requirements for full relief are not met, a fallback to standard relief is generally not permitted. sogenannte Optionsfalle. Wurde die Erklärung zur Vollverschonung abgegeben und werden nachträglich die Anforderungen an die Vollverschonung auch nachträglich nicht erfüllt, wird ein Rückfall in die Regelverschonung nicht gewährt.

Reform of tax privileges for business assets: What is the political agenda?

Currently, there is an ongoing debate about reducing the tax privileges for business assets and limiting the relief rates. Companies with high hidden reserves in their business assets and a significant share of management (non-operating) assets are particularly affected. This raises the risk that existing benefits for business successors could be restricted or more tightly regulated by legislation.

Constitutional complaint: Discrimination against real property?

The political debate has gained momentum as the Federal Constitutional Court is currently examining whether the preferential taxation of business assets compared to real property – for example, rented real estate – is unconstitutional (Case Nos. 1 BvR 880/25, 1 BvR 882/25). The decision could have far-reaching consequences for business succession, estate planning, and gift structuring, potentially changing the tax framework for generational transfers of wealth.

Current recommendations for transferring business assets

Given the pending constitutional review and political debate, we recommend the following approach:

• Act promptly: Plan and execute transfers while the current favorable reliefs are still in force.
• Analyze asset structure: Examine the composition of the business assets, especially the share of non-operating assets, and optimize if necessary.
• Seek comprehensive tax advice: Small mistakes in the transfer of real property or business shares can jeopardize the eligibility for reliefs.
• Do not delay succession planning: As complexity and legal risks increase, early and professional planning is essential.