When it comes to transferring business assets, to following common tax relief options often come to mind: generational transfers, part-sale/part-gift transactions, and transfer of ownership without the right of possession. A generational transfer can be implemented during the entrepreneur’s lifetime in several different ways, and the chosen method may greatly influence the resulting tax implications. The Income Tax Act and the Inheritance and Gift Tax Act both contain provisions on tax relief for generational changes, whereas no such relief exists under the Transfer Tax Act.

These actions - particularly when large assets are involved - can offer significant tax advantages but also come with challenges. A successful generational transfer usually requires the involvement of a tax professional in the planning process. To avoid unnecessary risks and uncertainties, obtaining an advance tax ruling from the Tax Administration may be necessary. In addition, a generational transfer requires that the successor:

1. is identified, and  

2. is interested and capable of continuing the business.  

It is often said that the earlier the planning begins, the better. Mental preparedness and the transfer of tacit knowledge can be among the biggest stumbling blocks in this process. 

Another relatively well-known and simpler tax planning method is the possibility to give tax-free gifts of less than 5 000 euro over a three-year period. The recipient does not have to be a child or relative—the gift can be given to virtually anyone. The exemption applies to both money and other property, and because gifts from each donor are taxed separately, is it for example possible for both parents to give totally 9 998 euro in cash to each of their children every three years without tax consequences. Especially if done in a timely and structured way, or when there are multiple recipients, substantial sums can be transferred over time. 

But what if there is a large amount of wealth, few recipients, and a generational transfer is not relevant or even feasible? Parents have a legal obligation to support their children until they turn 18, and spouses are also legally obliged to support each other. Few people realize that living expenses paid on behalf of other individuals are, by law, tax-exempt - and this rule is not limited to spouses or children. 

For such living expenses to be considered tax-free for the recipient, the payer must cover expenses such as rent, car repairs, groceries, or service charges directly. If the money is first transferred to the recipient’s account and the recipient then pays the expenses, the tax exemption does not apply, as the recipient had, in theory, the ability to use the money for other purposes. 

It is noteworthy that financial need is not a requirement for the tax exemption. This means that even significant asset values over a longer time span can be transferred tax-free by covering someone’s living expenses, enabling the recipient to save or invest a large portion of their income. 

For example, a family with children may easily incur 30 000–100 000 euro annually in living expenses. When this is combined with the ability to give gifts of less than 5 000 euro every three years, it becomes possible to transfer substantial wealth over a 10-year period entirely tax-free. 

In summary, there are many ways and methods to transfer wealth, and early planning is essential. Some key points to consider include:

• A generational transfer can be a tax-efficient way to transfer business assets but requires the recipient to continue the business. Tax relief does not apply to passive investments such as publicly listed shares or shares in investment funds.

• Gift tax can be reduced if the right of possession is retained by the donor - this is common when transferring vacation properties.

• Property can be sold below market value without tax consequences, provided the sale price exceeds 75% of the fair market value.

• There are no euro or recipient-specific limits on covering another person’s living expenses, but they must be paid directly from the donor’s funds.

• Tax-free living expenses include groceries, rent, phone, and internet costs. Acquiring property or repaying debt is not tax-exempt, except in the case of student loans.

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