In April 2016, the Supreme Court that the business succession scheme (BOF) under inheritance and gift tax law may apply to the acquisition of shares in a private limited company (B.V.) that operates property. However, the acquirers of the shares must be able to prove that the property-managing B.V. is a tangible business is driven by; or that the use of the property in that specific situation qualifies as more than just standard asset management. That didn’t work out in a case in which Court of Appeal of Den Bosch recently handed down a ruling.
Liquidation value
The interested party had apparently already taken this decision into account to some extent. The argument that the BOF could be applied was, in fact, preceded by the argument that the valuation of the shares in the property company must be based on the liquidation value of the property forming part of the company’s assets.
The liquidation value is equal to the amount an asset would fetch in a forced sale. This value is generally considerably lower than the market value.
In order to pay the income tax and inheritance tax, the private limited company’s property had to be sold. This was because the estate did not contain any other assets with which these taxes could be paid. According to the interested party, the obligation to pay the taxes meant that the sale was more or less forced, and that the property would not fetch more than its liquidation value.
Market value
The Court has ruled that the fact that tax is payable is irrelevant to the valuation of the shares. According to the Court, there is no reason whatsoever to proceed with a hasty sale of the property.
The shares in the property company must, in accordance with Section 21 of the Inheritance Tax Act 1956, be valued at the market value. That is the price which would have been paid by the highest bidder had the property been offered for sale in the most appropriate manner and following the most appropriate preparation on the day of death.
There was no dispute between the parties that, in this case, the market value is equal to the value of the property whilst let. That value was determined using the rental value capitalisation method.
Appeal to the Court of Cassation
The Court’s judgment was delivered on 14 July 2016. This means that, at the time of writing, the time limit for lodging an appeal in cassation has not yet expired.