With effect from 1 July 2025, business transfers involving real estate will become a bit trickier. Unless Finance still comes up with an approval.
Transfer tax
The problem arises with the transfer tax. This is the tax payable on the acquisition of real estate. The interest is 10.4% of the value of the property acquired, which is more than enough to arrange the business succession in such a way that this tax is not due.
With effect from 1 July 2025 amend the conditions attached to the exemption in transfer tax when a legal entity is split. Added are the conditions that:
- all or an independent part of the company is acquired (company requirement);
- the company must be continued for at least 3 years after the demerger (continuation requirement);
- the shares acquired in the demerger must be held for at least 3 years (arrest requirement).
Breakaway
A tax march route commonly used in the context of a business succession (parent > child) starts with the legal separation of a new BV from the parent's holding company. That new BV houses the shares in the company and the real estate. The shares in the new BV are then gifted by the parent to the business successor. Tax-friendly through the application of the income tax pass-through scheme and the business succession scheme in gift tax.
From 1 July 2025, this route of march is no longer possible (without levying transfer tax). This is because the acquisition by the new BV does not include the acquisition of a company. After all, the company is run by the work BV.
Solution
The most obvious solution is to create a structure in which the real estate is not part of the holding company's assets. Upon demerger, the new BV then does not acquire any real estate, so transfer tax will not be an issue (of course, care must be taken to avoid the shares of the Real Estate BV notionally qualifying as real estate).
Waiting time: 3 years
If the business real estate belongs to the assets of father's holding company, the adjustment of the business structure to that with the real estate BV for transfer tax purposes will take place via the group exemption. This exemption is subject to the condition that the real estate remains part of the group for at least three years. Gifts to the business successor within those three years will still result in transfer tax being levied.
Where possible, this three-year waiting period can be avoided by carrying out the legal split-off from the holding company before 1 July 2025. However, given the formalities associated with the demerger, the time to do so is then starting to run out. And an important consideration is that the transfer tax inspector is of the opinion that the exemption for demerger can only be applied if the shares of the demerged BV are donated shortly after the demerger as part of the business succession.
Approval?
We question the usefulness of complicating real-life business transfers through these new rules. If Finance does not come up with an approval for real business transfers at this point, company structuring will have to be adapted to the new regulations.