When to pass the family business on

Comparison between tax on family business transfer upon inheritance or during retirement

While the majority of countries treat gifts on inheritance in no materially worse a way than retirement, certain countries tax gifts on inheritance more harshly than lifetime gifts, reinforcing the need to speak to an adviser so that one is armed with the knowledge of the implications associated with passing on the business at the most appropriate time that suits both the business

Comparison of tax implications on inheritance and retirement (after exemptions) for countries with the significantly (over €5,000) higher taxes on retirement transfers

Comparison of tax implications on inheritance and retirement (after exemptions) for countries with the significantly (over €5,000) higher taxes on retirement transfers

objectives and those of the family members. Among these countries are Belgium, France and the US (high tax state), which all apply higher taxes on the transfer of the family business on inheritance than on a lifetime transfer. The difference is not insignificant (Belgium — €300,000 France — €421,197 the US (high tax state) — €615,860). Thought should, therefore, be given to advanced planning in these situations to ensure that the tax implications of all available options are understood. The majority of the surveyed countries (30) apply the same or almost the same (a minimal <€5,000 difference) amount of tax to a family business succession on inheritance and retirement, after the exemptions are considered.

Conversely, 10 countries apply a higher tax on the transfer of a family business on retirement than on inheritance. Of those,

Japan, Jordan, Turkey and Australia all tax lifetime gifts significantly more heavily (an additional €1 million compared to taxes on inheritance) (Table 3). As a result, these countries appear to prefer assets remaining in the hands of the older generation for as long as possible. Australia provides partial exemptions on retirement transfers, while providing for full exemptions on inheritance. Luxembourg applies a gift tax on lifetime transfers with no exemption available, compared to no tax being payable on the transfer of business on inheritance.

The difference in tax treatment of inheritance and lifetime transfers may impact considerably on family’s attitude and the owner’s decisions about when to transfer the family business. While from a tax perspective it may be more beneficial to transfer the business to the family members on death rather than during the owner’s lifetime, this can lead to the younger generation feeling frustrated that they do not ‘own’ the business they are working to help grow. Balancing the need for the older generation to retain ownership while the younger generation runs the business may require tact and compromise from both sides.


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Femi Oke

About Femi Oke

Relentless passion for creativity and digital acumen to help a professional services firm thrive in the digital space. Femi is an individual with a rich experience on regional African knowledge, its diverse business culture and he understands the continent’s economic drive. He thrives on selfless service and lasting mutually beneficial relationships with colleagues and especially clients encountered in the course of his duties. He is creative, practical and self-motivated with business judgement in corporate, brand and strategic communications, social, digital & traditional media and executive profiling. Roles in the firm include New Media, Digital Communication, Corporate Communication, executive profiling and Brand Management execution. Working on the multi-million dollar Africa high growth market project stands out for femi; besides this, managing all KPMG’s digital communication for the World Economic Forum on Africa is another project that gives him great delight. Femi holds a Masters Degree in Global Marketing from the University of Liverpool.

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