What Germany’s wealth tax, the case law of the Hungarian Constitutional Court and European law may mean for the new plans

Hungary is currently discussing the introduction of a new wealth tax. This raises not only political and economic questions, but also a fundamental legal issue: could such a wealth tax violate Hungary’s Fundamental Law?

Germany provides a particularly instructive comparison. No wealth tax has been levied there since 1997, after the Federal Constitutional Court objected to the rules then in force.

The German decision is often misunderstood, however: the Federal Constitutional Court did not declare wealth taxation as such unconstitutional. Rather, the specific design of the tax was unconstitutional – in particular, the different valuation of different types of assets.

That distinction may also prove decisive for Hungary’s new wealth tax.

Why has Germany not levied wealth tax since 1997?

The leading decision is the Federal Constitutional Court’s order of 22 June 1995 – 2 BvL 37/91 (BVerfGE 93, 121).

The central issue concerned the tax valuation of assets.

While financial assets and other property were valued on a comparatively current basis, real property continued to be valued using very old standard values known as Einheitswerte. In West Germany, these values were essentially still based on the market conditions prevailing in 1964.

As a result, assets of equal economic value could receive substantially different tax treatment.

A taxpayer whose wealth consisted predominantly of real estate could therefore be significantly better off than a taxpayer holding securities of the same economic value.

The Federal Constitutional Court held that this violated the general principle of equality under Article 3(1) of the German Basic Law.

The wealth tax itself was not unconstitutional

This point is particularly important for the current debate.

The Federal Constitutional Court did not hold that a periodic wealth tax was inherently incompatible with the Basic Law.

Instead, it objected to the specific combination of:

• different valuation methods,
• outdated real property values, and
• the resulting substantial differences in the tax burden imposed on different types of assets.

In principle, the German legislature could therefore have enacted a new wealth tax based on a constitutionally compliant valuation system.

The Court permitted the previous provisions to remain applicable until 31 December 1996. As no corresponding new legislation was enacted thereafter, Germany has not levied the wealth tax since 1997.

The frequently heard statement that the Federal Constitutional Court “abolished the wealth tax” is therefore legally inaccurate.

Is there a constitutional ceiling for wealth taxes?

The so-called principle of equal division, or Halbteilungsgrundsatz, is also frequently mentioned in connection with the German decision.

In 1995, the Federal Constitutional Court considered that a periodic wealth tax should generally be designed so that it can typically be paid from the yield generated by the assets and does not gradually consume the underlying capital.

This does not, however, establish a rigid constitutional tax ceiling of 50 per cent.

The Federal Constitutional Court subsequently clarified that no such general principle of equal division exists.

What matters instead is the specific tax base, the tax rate and the tax’s actual burden.

What is planned in Hungary?

On the basis of the information currently available, Hungary plans to introduce an annual net wealth tax.

The model under discussion provides in particular for:

• an exemption threshold of HUF 1 billion in net wealth,
• a rate of 1% on the portion exceeding that threshold, and
• an increased rate of 1.5% on the portion exceeding HUF 100 billion.

Under the current concept, the assets taken into account would include real estate, securities, financial investments, corporate shareholdings, certain high-value movable assets and, in principle, foreign assets.

Documented liabilities would generally be deductible when determining net wealth.

A final constitutional assessment will, however, depend on the final statutory rules – particularly the provisions governing asset valuation.

Hungary has already faced a constitutional problem involving a wealth tax

It is particularly noteworthy that the Hungarian Constitutional Court (Alkotmánybíróság) already had to consider a form of wealth taxation in 2010.

In Decision 8/2010. (I. 28.) AB, the Court reviewed the taxation of certain high-value assets.

On that occasion, too, the Constitutional Court did not declare wealth taxation as such unconstitutional.

The problem instead lay in the specific design of the tax on residential real estate.

Taxpayers were required to determine the market value of their own properties. At the same time, there was no sufficiently precise method by which that value could be established reliably.

If the tax authority later reached a different conclusion, taxpayers could face significant tax consequences and penalties.

The Constitutional Court considered it problematic from a rule-of-law perspective to transfer the risk of an objectively uncertain market valuation to taxpayers in this manner.

That decision may be highly relevant to the new wealth tax.

Where do the constitutional risks of Hungary’s new wealth tax lie?

A wealth tax is not inherently excluded under Hungary’s Fundamental Law (Alaptörvény).

Its specific design must, however, satisfy several constitutional requirements.

1. Equal treatment of different types of assets

As in Germany, a central problem could arise if different types of assets are valued according to structurally different standards.

The valuation of listed shares is relatively straightforward: a current market price will generally be available.

Valuation is substantially more difficult, for example, in the case of:

• unlisted companies,
• family-owned businesses,
• minority shareholdings,
• real estate for which no current comparable transactions exist,
• works of art,
• assets held through trusts or foundations, or
• complex foreign ownership structures.

If such assets are systematically valued differently, this may give rise to a constitutional equality issue.

There is a clear parallel here with the German decision of 1995.

2. Legal certainty in valuation

For Hungary, legal certainty in asset valuation may be even more important.

Taxpayers must be able to determine with sufficient certainty the value to be reported in their tax returns.

A system would be particularly problematic if taxpayers had to estimate the market value of an unlisted company themselves, the tax authority determined a substantially higher value years later, and the difference automatically resulted in significant penalties.

Precisely this type of risk transfer was at issue in Decision 8/2010. (I. 28.) AB.

A constitutionally robust regime should therefore provide in particular for:

• clear valuation methods,
• transparent valuation parameters,
• reasonable tolerance ranges, and
• effective legal remedies.

3. Protection of property and confiscatory effect

A tax may not, in practical terms, result in an uncompensated deprivation of property.

In its more recent case law on local land taxes, the Hungarian Constitutional Court has made clear that a tax may become constitutionally problematic if it consumes the value of the taxed asset within a relatively short period.

Rates of 1% and 1.5% do not in themselves appear to produce such an effect.

Certain special cases may nevertheless create difficulties.

For example, a taxpayer may own a very valuable business or high-value property without receiving corresponding liquid income.

An annually recurring wealth tax may then create significant liquidity pressure.

The following may therefore be particularly important to the constitutional assessment:

• deferral rules,
• payment by instalments,
• hardship provisions, and
• special rules for illiquid assets.

4. Taxation according to economic capacity

Article XXX of Hungary’s Fundamental Law links contributions to public expenditure to the ability to pay and participation in the economy.

A progressive wealth tax with a high exemption threshold can, in principle, be justified by reference to that principle.

The legislature enjoys considerable discretion in tax matters.

That discretion ends, however, where distinctions become arbitrary or the taxpayer’s actual economic capacity is no longer adequately taken into account.

The Hungarian Constitutional Court can once again review tax laws more comprehensively

An amendment to Hungary’s Fundamental Law is particularly relevant to the present debate.

The special restrictions formerly contained in Article 37(4) and (5) of the Fundamental Law on constitutional review of central tax and budget legislation were repealed in 2026.

Since 1 October 2026, new tax laws can therefore once again be reviewed much more comprehensively, in particular by reference to the protection of property, equality, economic capacity and rule-of-law legal certainty.

This is of considerable practical importance for a new wealth tax.

Could the wealth tax also violate the ECHR?

In addition to Hungarian constitutional law, the European Convention on Human Rights (ECHR) must be considered.

Article 1 of Protocol No. 1 to the ECHR protects property. At the same time, it expressly recognises the right of states to impose taxes.

The European Court of Human Rights (ECtHR) generally affords states a wide margin of appreciation in tax matters.

A tax may nevertheless become problematic from a human-rights perspective if, for example, it:

• is designed arbitrarily,
• retroactively imposes exceptionally high burdens,
• places an excessive burden on individual taxpayers, or
• fails to provide sufficient procedural safeguards.

Of particular relevance to Hungary is N.K.M. v. Hungary, application no. 66529/11, judgment of 14 May 2013.

In that case, the ECtHR objected to a 98% special tax imposed on certain severance payments.

A general wealth tax at rates of 1% and 1.5% is not directly comparable with that case.

Accordingly, if a wealth tax is properly designed, a violation of the ECHR would generally appear less likely than an issue under domestic Hungarian constitutional law.

What role does EU law play?

The European Union does not have a fully harmonised general wealth tax.

Whether a Member State introduces such a tax is therefore, in principle, a matter of national policy.

EU law becomes relevant, however, as soon as cross-border circumstances are involved.

Potentially problematic provisions could include rules under which:

• foreign assets are valued less favourably than Hungarian assets,
• foreign liabilities cannot be deducted on the same basis,
• non-residents receive lower exemption thresholds,
• shareholdings in foreign companies receive less favourable tax treatment, or
• foreign assets are subject to disproportionate reporting duties and penalties.

In such cases, the free movement of capital under Article 63 TFEU and, in the case of corporate shareholdings, the freedom of establishment under Article 49 TFEU may be particularly relevant.

Is Hungary’s new wealth tax therefore unconstitutional?

On the basis of the information currently available, that question cannot be answered in the affirmative as a general proposition.

Neither German constitutional law, Hungary’s Fundamental Law nor the ECHR prohibits a wealth tax as such.

Nor do the rates currently under discussion – 1% and 1.5% – appear manifestly confiscatory in themselves.

The real constitutional risk instead lies in the technical details of the legislation.

The following questions will be particularly decisive:

1. How will different types of assets be valued?
2. How will the value of unlisted companies be determined?
3. Which liabilities may be deducted from the assets?
4. How will trusts, foundations and other asset-management structures be treated?
5. What tolerance ranges will apply to defensible valuation differences?
6. What penalties will apply if the tax authority subsequently reaches a different valuation?
7. Will hardship and deferral arrangements be available for illiquid assets?
8. Will domestic and foreign assets receive equal treatment in accordance with EU law?

Conclusion

The most important lesson from Germany is not that a wealth tax is unconstitutional.

This is particularly relevant for Hungary. In 2010, the Hungarian Constitutional Court objected to wealth taxation of residential real estate precisely because of uncertainty in determining market value.

If the Hungarian legislature establishes clear and verifiable valuation rules, reasonable tolerance ranges, effective legal protection and solutions for illiquid assets, a wealth tax as such would appear, in principle, capable of being constitutionally justified.

If, however, the valuation of privately held businesses, the attribution of complex asset structures or the consequences of a divergent tax-authority valuation remain unclear, there is a substantial risk that individual central provisions will not withstand review by the Hungarian Constitutional Court.

As in Germany in 1995 and Hungary in 2010, an objection to the specific design would be more likely than a fundamental constitutional prohibition of wealth taxation.

As at 7 October 2026. This article is provided for general information only and does not constitute legal or tax advice in any individual case.