There is a lack of consistency across Europe in the way in which family business transfers are taxed, with different exemptions and reliefs having a significant impact on outcomes in several countries, according to research by KPMG
The European Family Business Tax Monitor, published by KPMG in conjunction with European Family Businesses (EFB), compared the tax treatment of inter-generational family business transfers in 23 European countries.
Using the example of a small family business valued at €10m (£8m) the report analysed the potential tax burden on succession through either inheritance or retirement. Out of the 23 countries, seven impose no taxes whatsoever on family business transfers through inheritance.
Assuming that no reliefs are applied, the potential tax burden varies from nothing to €4m (£3.2m), the report says. If maximum tax exemptions are taken into account the number of countries which impose no tax rises to 13. But even with exemptions certain countries impose comparatively high levels of tax, with the maximum being €1.5m (£1.2m), or 15%, in Denmark.
In the UK, the tax due on succession through inheritance in the scenario studied was €3.88m (£3.17m) with no exemptions — the second highest of the countries analysed. But this can be reduced to zero if available exemptions and reliefs are applied.
In the case of family business transfers on retirement, six of the 23 countries impose no taxes. Assuming no reliefs, the top four countries levy between €2.8m (£2.3m) and €4.2m (£3.4m) upon a transfer of the business. If tax reliefs are considered, 13 countries apply no tax, but the top six still levy a comparatively high amount of between €300,000 (£245,000) and €1.5m (£1.2m).
In the UK, the tax due on succession through retirement in the scenario studied was €2.5m (£2m) with no exemptions — the fifth highest of the countries analysed. Again this was reduced to zero in certain circumstances if available exemptions and reliefs were applied.
KPMG said the results of the study show that it can be an uphill struggle for family businesses who want to continue to keep running the business, since many countries charge taxes when no cash has been generated by the individuals or the business as a result of the business transfer. This means the funds to meet the tax levy must be found from other sources.
Gary Deans, tax leader for family business at KPMG in the UK and Europe, said: ‘The impact of tax on a family business can vary dramatically from country to country. This is no surprise as the lack of clarity around reliefs, exemptions and how to qualify for them can be challenging. Not everyone's situation will qualify for the various reliefs of course, but our study shows that they can make a dramatic difference to the amount of tax payable when they do apply.’