Bavaria’s Finance Minister Markus Söder presented a reform concept for inheritance tax in an interview with the Süddeutsche Zeitung. On the one hand, he addresses the criticisms of the Constitutional Court. On the other hand, he plans to ease the burden on company heirs in other respects. Productive company assets could thus be bequeathed completely tax-free. This should also apply to corporations with a clear “family character”.

It is possible that the reform of the inheritance tax will end differently than was thought before the judge’s decision. Pessimists suspected that rows and rows of family businesses would close and thousands of employees would be made redundant. When the Federal Constitutional Court announced its ruling on the reform of inheritance tax, it became clear relatively quickly that things might not turn out so badly.

If Bavarian Finance Minister Markus Söder’s concept is anything to go by, this ruling could still prove to be advantageous for family entrepreneurs. In an interview with the Süddeutsche Zeitung, the CSU minister presented a concept for reforming inheritance tax that addresses the criticisms of the ruling. At the same time, it provides for a number of structuring options that would allow for a generational change in the family business without having to pay tax. Should this concept prevail, the heirs of family businesses would continue to have a clear advantage over other beneficiaries of the estate.

New freedoms for company successors

With this, Söder positions himself as clearly more friendly towards family entrepreneurs than many other decision-makers, for whom the exemption of business assets already goes too far. Despite all the criticism in detail, the judges in Karlsruhe see “that the protection of family businesses and jobs is in principle a legitimate factual reason for exempting businesses partially or completely from tax”. Söder also sees it that way in an interview with the Süddeutsche Zeitung last Friday: “The primary goal must be to preserve family businesses, safeguard jobs and preserve regional economic structures.”

Söder’s idea is to extend the purpose of the law through the expansion to include the “preservation of medium-sized and family-run business structures” in addition to safeguarding jobs. In order to achieve tax exemption, the heir would have to continue the company for five years in the existing scope. Up to now it has been seven years. According to the Söder plan, administrative assets, such as rented real estate, securities or art, would be fully taxable - but only the amount that remains after deducting all the company’s liabilities.

Tax-free transfer of “family-run” large businesses

In Söder’s idea, heirs to large companies with thousands or even tens of thousands of employees could also enjoy complete tax exemption for the business. The prerequisite would be that such a business has a clear “family character”, e.g. is still run by the owner.

Söder wants to restructure the unconstitutional blanket preferential treatment of micro-enterprises with up to 20 employees: Up to five employees, the change of generation is to be tax-free. For companies with six to 20 employees, the Bavarian finance minister plans a graduated regulation.