Gift Tax

Gift tax is the tax on the transfer of assets during one's lifetime without consideration. It largely follows the same rules as inheritance tax, but can be planned over time, for example through transfers in several steps. Tax classes, allowances and rates are governed by the same legislation. For planning purposes, transfers between the same people within ten years are aggregated. Once that period has passed, the personal allowance may become available again. In business succession, gifting allows shares to pass to the next generation early and the handover to be prepared in stages.

It is commonly combined with instruments that secure the transfer economically: a usufruct allowing the transferor to retain income while ownership passes, rights of revocation for defined circumstances, and a staged transfer of voting rights and capital. These choices need to fit together. Transferring shares while permanently retaining all decisions and income may leave the successor with little room to run the business. At the same time, the retiring owner's living expenses must remain covered without taking too much liquidity out of the company.

The tax is based on the value transferred even though no purchase price is paid. A defensible business valuation and a plan for available cash are therefore particularly important. Relief for business assets may apply, subject to conditions concerning the composition of the assets and the subsequent operation of the business. A later sale or changes within the company can affect the relief originally expected. Tax value and an achievable market sale price need not coincide either.

Preparation therefore considers the ownership structure, earlier transfers, company value and the retiring owner's income needs together. Funding possible tax payments, treating other family members fairly and allocating future decision rights also belong in the plan. Gift tax is an important component of succession planning. A tax-efficient transfer is economically workable only if the successor can manage the company and its earnings can support the payments agreed.

Note: This explanation is for general information only and does not constitute tax advice. Tax treatment depends on the individual case and may change with new legislation. For a binding assessment, please consult a qualified tax adviser.