The Finance Act: Better tax conditions for estate planning in respect of businesses
19 November 2015
As part of the Danish Finance Act (the National Budget) the Danish Government, the Danish People's Party, Liberal Alliance and the Danish Conservative Party agreed on a gradual reduction of the tax payable in relation to tax planning in respect of businesses from 15% to an expected 5% in 2020. At the same time the parties have agreed to introduce a possibility of transferring businesses to foundations with tax succession against payment of a tax equal to estate tax and gift tax in relation to family.
One of the most significant tax initiatives in the agreement on the Finance Act is a reduction of estate tax and gift tax in connection with estate planning of businesses.
Under the agreement estate tax and gift tax rate relating to estate planning in respect of businesses is expected to be reduced gradually from the current 15% to 5% in 2020 (probably to 13% in 2016 and 2017, 7% in 2018, 6% in 2019 and finally 5% from 2020).
The tax reduction will only apply to estate planning in respect of businesses and not to other types of property. A number of protection rules will be introduced to this effect. Under the agreement the exact wording of the protection rules may influence the exact level and timing of the tax reduction.
The reduction of estate tax and gift tax is to counteract the tightening of the rules on the valuation of businesses in connection with estate planning introduced by the previous government in February by abolishing the possibility of applying the specific calculation method for the valuation of unlisted shares in connection with estate planning (in Danish: formueskattekurs). The abolishment meant that businesses will generally be valued at higher prices than under the previous rules and consequently the tax payable will be calculated on the basis of a higher amount than before. It follows from the agreement that the reduction of estate tax and gift tax replaces the reintroduction of the rules on the calculation of the value of unlisted shares in connection with estate planning that the Government had wished.
At the same time as the rate of estate tax and gift tax is reduced, the parties have agreed to introduce the possibility of tax succession when businesses are transferred to commercial foundations. This means that in future a family owning a company will not have to pay capital gains tax on shares in connection with a transfer of the company to a foundation. In return, tax on the transfer equal to the (reduced) estate tax and gift tax will be payable under the new agreement. The tax will consequently be reduced to an expected rate of 5% by 2020. At the same time it will be possible to postpone the tax payment for up to 15 years. Protection rules will also be introduced in respect of this part of the agreement.
The bills implementing the agreement are expected to be introduced in the first six months of 2016. Until such time the exact conditions are unknown.
However, there may already at this time be reason to evaluate the new rules and the impact they will have on future estate planning.
Contact us for further information on the agreement and on how we can assist you in respect of estate planning.
The tax reduction will only apply to estate planning in respect of businesses and not to other types of property. A number of protection rules will be introduced to this effect. Under the agreement the exact wording of the protection rules may influence the exact level and timing of the tax reduction.
The reduction of estate tax and gift tax is to counteract the tightening of the rules on the valuation of businesses in connection with estate planning introduced by the previous government in February by abolishing the possibility of applying the specific calculation method for the valuation of unlisted shares in connection with estate planning (in Danish: formueskattekurs). The abolishment meant that businesses will generally be valued at higher prices than under the previous rules and consequently the tax payable will be calculated on the basis of a higher amount than before. It follows from the agreement that the reduction of estate tax and gift tax replaces the reintroduction of the rules on the calculation of the value of unlisted shares in connection with estate planning that the Government had wished.
At the same time as the rate of estate tax and gift tax is reduced, the parties have agreed to introduce the possibility of tax succession when businesses are transferred to commercial foundations. This means that in future a family owning a company will not have to pay capital gains tax on shares in connection with a transfer of the company to a foundation. In return, tax on the transfer equal to the (reduced) estate tax and gift tax will be payable under the new agreement. The tax will consequently be reduced to an expected rate of 5% by 2020. At the same time it will be possible to postpone the tax payment for up to 15 years. Protection rules will also be introduced in respect of this part of the agreement.
The bills implementing the agreement are expected to be introduced in the first six months of 2016. Until such time the exact conditions are unknown.
However, there may already at this time be reason to evaluate the new rules and the impact they will have on future estate planning.
Contact us for further information on the agreement and on how we can assist you in respect of estate planning.
