Limitations/Abolition of Business Succession Facilities

Under certain conditions, it is possible to transfer a business to another party without incurring gift or inheritance tax for you or the successor, thanks to the so-called Business Succession Scheme (“bedrijfsopvolgingsregeling”) (hereinafter referred to as BOR) or the deferral scheme for income tax. These schemes are now being scaled back.

The BOR provides a conditional exemption from gift and inheritance tax. When gifting business assets up to a maximum value of €1,205,871 (2023), they are fully exempt from gift and/or inheritance tax, and for the amount exceeding this value, an 83% tax exemption is applied. The exemption does not apply to any investment assets held within the business, except for a 5% margin of utility.

The State Secretary had previously announced that the BOR would be scaled back, but based on the spring memorandum 2023, the proposed changes seem to be less severe. The following changes to the BOR are proposed in the spring memorandum 2023:

• Rented-out real estate to third parties will always be classified as investment assets starting in 2024;
• The threshold for the 100% exemption will be increased to € 1,500,000 starting in 2025 (currently €1,205,871);
• At the same time, the exemption for the excess value will decrease to 70% in 2025 (currently 83%);
• The utility margin for the BOR and deferral scheme will completely disappear starting in 2025;
• Starting in 2025, there will be a limitation on the qualifying choice assets. In cases of mixed-use assets, only the portion actually used within the business will qualify for the BOR (previously, the portion used privately also qualified);
• Access to the BOR will be restricted to regular shares with a minimum 5% ownership, rather than any substantial interest (this prevents any substantial interest, no matter how small, from qualifying for the BOR);
• Abolition of the employment requirements for the deferral scheme (currently, the recipient should already be employed by the business for three years) and less strict ownership and continuation requirements for the BOR;
• Prevent improper use, such as transferring assets into the company at an advanced age by the private individual;

Are you considering transferring your business to a next generation? It may be advisable to do so under the current legislation in light of the proposed changes.

More from the HBK Update June 2023

• New (temporary) legislation regarding box 3
• Holding on to definitive assessments and objections with income in box 3
• Restructuring box 3 assets before October 1st (valuation date arbitrage)
• Excessively lending act
• Limitations/Abolition of Business Succession Facilities
• Tax authorities will start checking for pseudo self-employment from 2025
• Convert loss from substantial interest into tax credit
• No tax-free allowance for each day working from home
• Repaying Deferred Tax Payments
• MIA and Vamil
• Reimbursement of costs for assistance with filing income tax return for foreign employees
• Co-operating spouses: Co-operating remuneration or co-operating tax deduction?