Inheritance Tax

Inheritance tax is the tax on the transfer of assets in the event of death. Its amount depends on the degree of kinship and the value of the inherited assets, with a tax-free allowance of 400,000 euros for children. The allowance is 500,000 euros for spouses and registered partners and generally 200,000 euros for grandchildren. Earlier gifts from the same person within ten years are taken into account in the calculation. For business succession, the complete transfer history therefore matters, not just the value of the shares inherited most recently.

Special relief for qualifying business assets can substantially reduce the burden. It does not apply automatically to everything a company owns. Relevant factors include the composition of its assets and conditions concerning continued operation, employment and the holding period. Anyone planning a sale, substantial withdrawals or a restructuring after inheriting the business needs to assess the effect on expected relief early.

The decisive economic issue is liquidity: tax is assessed on value tied up in the company that cannot readily be withdrawn. A profitable business may therefore be inherited without the heir having enough freely available cash to pay the tax. Distributions used to fund the payment are then unavailable for investment, debt repayment or ongoing operations. Compensation payments to other family members may place further demands on the same cash flow.

Preparation consequently requires a defensible business valuation and a plan for the payments actually due. This should distinguish privately available funds, cash that can be taken from the company and any financing needed. A high valuation does not automatically create available liquidity. In a later sale process, existing tax conditions may also affect the timing or structure of the transaction. This explains the link to transaction advice: valuation, ownership structure and funding of the succession must fit together so that a tax payment does not force a sale under time pressure.

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.