When are business assets eligible for tax relief deemed to have been ‘disposed of’ for inheritance tax purposes: upon signing the purchase agreement or only upon closing of the transaction? In its judgement of 12 December 2025 (case no. 3 K 695/24 Erb), the Fiscal Court of Münster has, for the first time, taken a clear stand against the tax authorities, thereby significantly strengthening the rights of acquirers of assets eligible for relief. An appeal is currently pending before the Federal Fiscal Court.
I. The issue and the tax authorities’ view
Business assets acquired by way of inheritance or gift are eligible for tax relief under the conditions set out in Sections 13a and 13b of the Inheritance Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz, ErbStG). The extent of the relief, known as the ‘exemption discount’ (Verschonungsabschlag), amounts to 85% under the standard exemption (Regelverschonung) and 100% under the optional exemption (Optionsverschonung).
A prerequisite for the exemption in each case is compliance with a retention period. This is five years for the standard exemption (Section 13a para. 6, sentence 1 ErbStG) and seven years for the optional exemption (Section 13a para. 10, sentence 1, no. 6 ErbStG). If the business assets eligible for the exemption are disposed of within this period, the exemption discount is withdrawn with retroactive effect (Section 13a para. 6, sentence 1, no. 1, sentence 1 ErbStG), or on a pro rata basis where applicable (Section 13a para. 6, sentence 2 ErbStG).
The tax authorities take the view that a disposal that interrupts the holding period is deemed to have taken place as soon as the purchase agreement under the law of obligations is concluded (signing) (RE 13a.13 para. 1, sentence 2, ErbStR 2019). Accordingly, it is not the completion of the transfer in rem (closing) that is decisive, but rather the contractual obligation to transfer ownership. This can lead to significant tax burdens, particularly in the case of transactions requiring approval where there are long intervals between signing and closing.
The tax authorities’ view is contested in tax law literature. Proponents of the ‘signing’ criterion cite the practical consideration that the date of conclusion of the agreement under the law of obligations can be determined with legal certainty, whereas the parties generally have no direct influence over the date of closing. The prevailing view in the literature counters this by arguing that basing the assessment on the signing is neither covered by the wording of Section 13a para. 6 ErbStG nor compatible with the spirit and purpose of the retention provisions. Since the transferor remains the owner of the assets benefiting from the relief until the closing and continues to bear the risk of impairment, the administrative view contradicts the regulatory purpose of the actual continuation of the business.
II. Decision of the Fiscal Court of Münster
In its judgement of 12 December 2025 (case no. 3 K 695/24 Erb), the Fiscal Court of Münster has now taken a stand against the tax authorities’ view and ruled that, for the purposes of determining the retention period under Section 13a para. 6 and para. 10 ErbStG, the date of closing must be taken as the relevant date. The judgment was based on the following facts: In 2009, the claimant’s father had granted her a sub-interest in his limited partnership interest (Kommanditanteil). Under the agreement between them, the sub-participation was to be terminated if the father sold his interest in the limited partnership or otherwise withdrew from it. On 1 October 2013 and 1 March 2015, this sub-participation was increased on each occasion by way of a gift. The claimant claimed the option for tax exemption in respect of both increases.
In March 2020, and thus still within the seven-year retention period, the father undertook to sell and transfer his limited partnership interest with economic effect from 31 December 2019, which simultaneously resulted in the termination of the sub-participation arrangement. The agreement was subject to several conditions precedent, including approval by the European Central Bank (ECB). The transfer of the limited partnership interest therefore only took effect upon fulfilment of the conditions, namely in September 2021.
The tax office had already regarded the signing in March 2020 as a detrimental disposal transaction and applied the exemption discount only on a pro rata basis, at 6/7 for the increase from 2013 and 5/7 for the increase from 2015. The Fiscal Court of Münster upheld the appeal in its entirety. The Fiscal Court of Münster took a different view on this matter, basing its decision in particular on the following three key arguments:
The court first draws on the interpretation of the term ‘disposal’ under income tax law. Referring to a decision of the Federal Fiscal Court (Bundesfinanzhof, BFH;see judgement of 1 July 2020 – II R 19/18), the term ‘disposal’ in Section 13a para. 6 of the Inheritance Tax Act must be interpreted in accordance with income tax law. The disposal of a co-entrepreneurial interest is, in turn, governed under income tax law by Section 16 of the Income Tax Act (Einkommensteuergesetz, EStG). According to this provision, the transfer of a co-entrepreneurial interest generally takes effect only upon the performance of the transaction in rem, provided that the acquirer has not already acquired economic ownership. This presupposes, in addition to a legally protected position of acquisition, that both the entrepreneurial risk and the entrepreneurial initiative have been transferred in full to the acquirer. For income tax purposes, the disposal is therefore generally to be determined by the closing and not by the signing. When interpreting the term ‘disposal’ for income tax purposes, this must apply equally to the retention period specified in Section 13a para. 6 and para. 10, sentence 1, no. 6 ErbStG.
The Fiscal Court of Münster further bases its decision on the wording of the Act. Section 13a para. 5 ErbStG (previous version; now Section 13a para. 6, sentence 2 ErbStG) refers to a “disposition” (Verfügung) that is detrimental to the retention period. Under civil law, a “disposition” always and exclusively refers to a legal transaction in rem which directly affects an existing right and results in its transfer, encumbrance, modification or termination. This suggests that a contractual obligation cannot yet constitute a detrimental ‘disposition’.
Finally, in the court’s view, a teleological interpretation also confirms this conclusion. According to the legislative materials (see Bundestag Print 16/7918, p. 3), the retention period is intended to ensure the actual continuation of the business. In practice, however, the contractual transaction, i.e. the signing, does not yet bring the continuation of the business to an end. Until the closing, the transferor remains the legal and, as a rule, also the economic owner and bears the risk of impairment. This suggests that, within the framework of Section 13a para. 6 and para. 10 of the ErbStG, the closing should be taken as the relevant point in time, as it is generally only at this point that the continuation of the business comes to an end.
In the case in question, the retention period had expired in full at the time of closing in September 2021 with regard to the gift made in 2013, meaning that any back-taxation based on the interpretation set out above by the Fiscal Court of Münster was entirely ruled out in this respect. With regard to the gift made in 2015, six full years of the seven-year retention period had elapsed, meaning that the tax relief was granted on a pro rata basis for six years rather than for five, as assumed by the tax office. The remaining additional tax liability is therefore limited to 1/7.
III. Practical note
Although the Fiscal Court of Münster’s judgement is not yet final, as the case is currently pending on appeal before the Federal Fiscal Court under reference number II R 1/26, the decision is already of great practical relevance. This is not altered by the fact that the decision was handed down under the old version of Section 13a para. 5, sentence 1, no. 1, sentence 1 ErbStG. Section 13a para. 6 ErbStG, in its currently applicable version, essentially corresponds to the previous provision.
The following therefore applies in advisory practice:
In structuring advice, the administrative view should continue to be taken as a basis until final clarification is provided by the Federal Fiscal Court, and the signing, irrespective of the closing, should be treated as a date that could potentially affect the retention period. In the case of planned disposals, it is therefore advisable, where possible, to carry out the signing only after the current retention period has expired.
Particular attention should be paid to the notification requirement under Section 13a para. 7, sentence 2 ErbStG. According to this provision, the acquirer must notify the competent tax office of any breach of the retention period within one month. Pending final clarification by the Federal Fiscal Court, it is advisable, as a precautionary measure and in line with the previous administrative interpretation, to make the notification immediately following a signing that could potentially affect the retention period, whilst pointing out that, with reference to the decision of the Fiscal Court of Münster, the view is taken that the closing date should be used to determine the retention period. Where tax assessment notices have already been issued on the basis of the previous administrative interpretation and are based on the date of the signing, these should be challenged by way of an appeal. Furthermore, it is advisable to apply for the appeal proceedings to be stayed, citing the appeal proceedings pending before the Federal Fiscal Court.