Early planning for the generational succession of a family business is essential for achieving tax optimization and significant tax savings when inheriting shares of a family business or receiving them through donation.
The Inheritance and Gift Tax taxes the transfer of social participations in the event of the holder's death or donation. Despite this, current regulations provide a bonus for the spouse, descendants, ascendants, or collateral relatives up to the third degree of the deceased, both by blood or adoption as well as by affinity. This bonus consists of the possibility of applying a 95 percent reduction on the taxable base of the tax on the value of the participations, provided a set of requirements are met.
In transfers due to death, the conditions to be met are as follows: firstly, the company must have an economic activity. Secondly, the deceased's participation in the company's capital must constitute at least 5 percent individually, or 20 percent jointly with family members, and, finally, that the deceased or some member of the previously detailed family unit has effectively exercised management functions in the entity and has received remuneration for this task that constitutes more than 50 percent of the total income from economic activities and personal work. For heirs or acquirers, the definitive enjoyment of the reduction will be conditioned on maintaining the acquired participations for the five years following the death of the deceased. Donations of participations can also benefit from the mentioned 95 percent reduction, provided the previously mentioned requirements are met and the donor is sixty-five years old, or is in a situation of absolute permanent incapacity or severe disability, and, on the date of the donation, if he/she exercises management functions in the entity, he/she ceases to exercise them and to receive the corresponding remunerations.
Facing a future business succession, it will be important with sufficient anticipation to analyze the company, its asset structure, and family composition, as failing to strictly comply with all the requirements demanded by the regulations can mean losing the possibility of enjoying tax benefits and, consequently, greatly increasing the taxation that the generational change of the family business may entail. At Grup Carles, we place great importance on these aspects, from a legal and fiscal point of view, to guarantee a fiscally efficient business succession.
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