The KPMG-EBF European Family Business Tax Monitor is based on the findings of a survey undertaken in 23 countries in Europe. The survey used the example of a small family business valued at €10 million with a potential tax burden on succession through inheritance or succession on retirement.
Without taking into account the issue of whether or not the next generation is willing to take over, there can be serious tax implications when handing over the family business. The two scenarios, are firstly, passing on the family business through inheritance, and secondly, retiring and handing the business on as a gift to the next generation.
This Tax Monitor has looked into the tax impact of the transfer of the business to family members in both cases. Each participating country received two case studies and a questionnaire to complete, providing details on how their country would tax each event. Further research and analysis was then undertaken by KPMG and EFB experts to highlight key trends in relation to exemptions and reliefs.
Tax due on succession through inheritance
Regarding tax on succession through inheritance, 7 out of the 23 surveyed countries levy no taxes whatsoever. This study reveals tax treatment of inter-generational family business transfers varies significantly across Europe, with differing levels of complexity and obligations. Indeed, across all countries taking part in this survey, the potential tax expense on inheritance spans from €0 to €4m. However many countries apply exemptions and reliefs over inheritance. When we consider these exemptions, then 13 countries out of the 23 apply no taxes. This underlines the importance of preparing and planning in advance for the transmission of the Family Business, taking into account the domestic fiscal framework and tax constraints.
Tax due on succession on retirement
In regard to gift tax due on retirement, taxes are charged in 17 of the 23 surveyed countries. Without taking into consideration tax exemptions and reliefs, the top four countries are levying between €2.8m and €4.2m upon a transfer of the business. Yet when these exceptions are acknowledged, 13 countries apply no taxes whatsoever. Overall some countries still have more favourable gift tax regimes than others since tax expenses vary from €0 to €1.5m.
Transfer of the family Business in Europe is still a major challenge
This analysis shows that passing on the ownership of the family business to future generations through gifts or inheritance can trigger tax consequences. Many countries levy tax on a transfer of the business. In these countries, next generation owners find it tough to generate cash as a result of the business transfer and often have to rely on borrowing funds to pay the inheritance tax. These taxes actually inflict an economic impact on the business and can hinder future growth and investment.
Besides, the Tax Monitor reveals that differences in gift tax policies in European countries can influence the family’s attitude towards the transfer of the family business. For instance, family business leaders may be reluctant to pass on the control of the business, delaying the transfer for tax reasons. Such attitudes may penalize the growth of the business and frustrate the next generation.
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