Gift, Inheritance or Sale? Tax Planning for Succession

This is a strategic question every founder with children or family asks: Should I give the business away, leave it as inheritance or sell it? And what are the tax consequences?

The answer is complex and depends on: Operating assets definition, operating assets privileges, gift tax vs. inheritance tax, personal exemptions, successor's income.

With the right tax structure you can save 100,000-500,000 EUR in taxes. With the wrong structure you can lose millions.

Advantage: You still see how your business runs. You can see problems and react. Psychologically this can be satisfying.

Taxes: Gift tax is the same as inheritance tax – but exemptions are the same (400,000 EUR for children). This means: Your child can receive 400,000 EUR tax-free, then it gets expensive.

Tactic: You can gift multiple times. In year 1 you gift 400,000 EUR. In year 2 again. After 10 years you've transferred 4 million EUR tax-free (through repeated use of exemptions).

But: If your business grows fast, the gift can be too low. The successor gets a business worth 2M, even though only 400k was tax-free – a problem.

Advantage: No planning complexity during your lifetime. It happens automatically.

Taxes: Inheritance tax is similar to gift tax. Exemptions are 400,000 EUR for children.

Problem: If your business is worth 3 million EUR and you have 400k exemption, 2.6M is taxable. With tax rate 19% (for children) that's 494,000 EUR inheritance tax. That's a massive tax burden.

The solution: §13a/13b Inheritance Tax Code – the operating assets privilege.

This is a German specialty and very valuable: If your business is "operating assets" (not assets, but active business), there are tax advantages.

With §13a: 85% of the value is tax-free if the business is structured correctly.

With §13b: You can use a "catch-all exemption" – under certain conditions the entire business is tax-free.

This means: A 3-million-EUR business can pass to your children completely tax-free under §13a/§13b.

But: The conditions are strict. The business must really be "operational" (not just holding real estate). It must continue for 5-7 years. Jobs must be preserved.

This is a modern structure: You sell your child the business at fair market value – but the child pays you back over 5-10 years.

Advantage: The successor has an incentive to optimize the business (because he owes you money). You get regular income (like a pension).

Taxes: The purchase price is the child's debt. You receive a gain (the difference between purchase price and hidden equity). These gains must be taxed.

But with good structure and valuation you can also use §13a/§13b here.

The first problem: Many businesses aren't clearly structured as "operating assets." The founder has mixed private property with operating assets. This makes §13a/§13b impossible.

With VALENTYR VOS Assessment this is automatically analyzed: "Is this business clearly structured as operating assets? Or is private property mixed in?" With this knowledge you can find solutions BEFORE the inheritance.

The second problem: The valuation must be right. If the inheritance tax authority thinks your business is worth 5M, but your tax advisor set 2M, there's trouble.

With VOS you have an objective valuation. Inheritance tax authorities can't challenge it.

The best solution is often a combination: Gift (during lifetime) of 400k using exemptions. Plus §13a/§13b planning for the remaining operating assets. Plus vendor financing for "fair" compensation.

With VALENTYR and professional tax advice you can design a structure that:

1. Uses §13a/§13b (operating assets privilege)

2. Maximizes exemptions (400k gifts)

3. Secures succession (child gets clear responsibility)

4. Minimizes taxes (often 50-80% tax savings possible)