Optimising tax in business succession – structuring within legal limits

Significant tax relief can be achieved when transferring businesses or parts of businesses as part of an anticipated succession. At the same time, tax-efficient arrangements should not be considered in isolation. In particular, the tax relief provisions for eligible business assets require that the statutory retention and wage bill thresholds be maintained over several years. If these conditions are breached, the tax relief may be revoked with retroactive effect, resulting in substantial additional tax claims.

In terms of succession planning, this means that a structure designed solely to maximise tax savings may entail significant risks in the event of subsequent changes to the structure. If the business is restructured, sold or its continued operation is significantly impaired during the relevant time periods, there is a risk that the assets originally exempt from tax will be subject to back-taxation. This can put a strain on the company’s liquidity and, in extreme cases, even jeopardise its financial stability.

In addition to applying the tax relief provisions, other structuring options may also be considered, such as a transfer free of charge subject to a right of usufruct, or the involvement of a holding company or a family trust. Such models may make sense from a tax perspective, but are only viable if they are coordinated in terms of company law, inheritance law and tax law, and are designed with the long term in mind.

Particularly in the case of usufruct, it is important to carefully assess whether the legal successor is granted sufficient status as a co-entrepreneur and whether the chosen structure is accepted by the tax authorities, in order to avoid any disputes at a later date.

Nor should the use of personal tax allowances within the family be at the expense of the company’s operational organisation. Whilst staggered transfers and distribution amongst several transferees may yield tax advantages, if this results in the fragmentation of voting rights, management powers or decision-making structures, it may lead to significant conflicts within the family and bring the company’s management to a standstill.

Tax optimisation is therefore an important factor, but not the only decisive one. A legally sound succession plan must always take into account not only the tax implications but also the business’s ability to operate, its liquidity and the balance within the family. It is therefore advisable to plan at an early stage, drawing on tax advice, legal advice and the services of a notary.

All information is provided for general guidance only and is not a substitute for individual advice.