Structuring your business succession – Tax aspects
Transferring control of your business to family members may involve restructuring your business operations – changes in shareholding, changes to the trustee, changes to a partnership structure – or transferring assets to family members, possibly by way of donation or through the creation of trusts or other entities. Different strategies will have different tax consequences for the owner and beneficiaries.
The focus is usually on reducing an individual’s taxable estate to minimise the tax liability on death and ensuring future generations retain as much of their relatives’ legacies as possible. A balance must be created between reducing the taxable estate and preserving enough income and capital to meet the individual’s needs.
The current reduced rate of duty of 1.5% on transfers of shares in a company to family members is particularly attractive for business owners wanting to start implementing their succession through lifetime donations. The reduced rate of duty is applicable until 31 December 2019. Following that, the duty rate payable on intra-family donations of shares in a company will be of 2% if the company is not a property company and 5% if the shares are held in a property company.
Splitting the ownership of a business between a bare owner and a usufructuary throughout one’s lifetime can also facilitate the future transfer of the business. Upon the usufructuary’s death, his or her right over the business, and his or her right to earn income from it, is automatically carried over to the bare owner, who takes over the full ownership with no tax to pay.
Tax planning is an essential element of any family business succession plan because it affects the value of the company, the owner’s personal wealth, and the amount of wealth that can be passed on to the next generation.
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