As mentioned in our article Top 10 Prinsjesdag 2023 A tightening of the business succession scheme has been announced. But what exactly is being tightened up, and what are the implications? We have summarised the key changes for you. (read here (more about the 2024 tax plan)
Business Succession Scheme (BOR)
The aim of the Business Succession Scheme (BOR) and the Deferral Scheme (DSR) is to prevent tax barriers (taxation) in business transfers. The BOR and the DSR provide that income tax and gift and inheritance tax are (partially) waived, subject to certain conditions. To qualify for the BOR and the DSR, the business must be a ‘material enterprise’. The schemes do not apply to investment assets.
Change to the scope of the exemption
The BOR stipulates that, in the event of a business transfer, 100% per cent of the value of the business is exempt up to an amount of €1,205,871. If the business is worth more than €1,205,871, 83% of the excess is exempt under the BOR.
From 1 January 2025, the scope of the Business Property Tax (BOR) exemption is expected to be adjusted. Firstly, the amount exempted under code 100% is expected to be increased from €1,205,871 (2023) to €1,500,000 from 1 January 2025. On the other hand, from 1 January 2025, the excess will only be subject to 70% 75% (This percentage has been amended by an amendment to the bill; see our article Changes to the 2024 tax plans) is exempt, rather than the current exemption of 83%.
Rental property will be classified as investment assets by default from 2024
From 1 January 2024, property let to third parties will be classified as investment property, with the result that it will no longer be eligible for the BOR and the DSR. Exceptions to this include short-term lets such as hotel rooms and the like. In addition, it is expected that an exception will be included for property used within the group itself.
Election rights are only available under certain conditions relating to business assets
Business assets that are used for both business and private purposes and fall within the scope of the ‘optional assets’ scheme are expected, from 1 January 2025, to qualify as business assets only if and to the extent that they are actually used within the business. It has been proposed that this measure should apply only to business assets with a minimum market value of €100,000.
Abolition of the 5% efficiency margin
Current legislation includes a 5% efficiency margin. Under this efficiency margin, investment assets of a private limited company (BV) with a maximum value of 5% of the business assets are classified as (qualifying) business assets. However, due to this efficiency margin, part of the investment assets still falls within the scope of the BOR and the DSR. The Government intends to abolish this efficiency margin with effect from 1 January 2025.
Changes to various terms and conditions
- Relaxation of the period of possession and continuation (BOR)
At present, the BOR can only be applied if the holding and continuity requirements are met. Under these requirements, the shares must have been held by the shareholder for a certain period both before and after the transfer. The Government has indicated that it intends to relax these requirements from 2026. It is not yet known how this relaxation will be implemented.
- Abolishing the employment relationship requirement (DSR)
In the case of a gift, the DSR can only be applied if the business successor has already been employed by the company whose shares are being gifted for 36 months. The government intends to abolish this requirement with effect from 1 January 2025.
- Introducing a minimum age for gifts (BOR and DSR)
From 1 January 2025, a minimum age for the recipient of a gift is expected to be introduced. With the introduction of this minimum age, the BOR and the DSR will, in the case of a gift, only apply if the recipient is at least 21 years old.
Action required?
If you are considering transferring your business now or in the future, the amendments to the BOR and the DRS may have implications for you. In particular, the change to the tax rate in box 2 could have a significant impact on the transfer of your business. We would be happy to work with you to assess how these changes will affect you and what steps are required to ensure a smooth business transfer. (read here more about the changes to tax rates in Box 2)