In the case of the tax exemption for business assets in inheritance tax and gift tax, a distinction must be made between the standard exemption on the one hand and the option exemption on the other. The standard case is the rule protection, standardized in § 13a paragraph 1 to 3 ErbStG. It provides for an exemption of 85 % of the beneficiary's assets and certain retention periods.
1st Principle of Rule Protection
regulated in § 13a paragraph 1 to 3 ErbStG, heirs, donors and gifted persons benefit from the so-called rule exemption of tax exemption for business assets. It amounts to 85 % of the beneficiary assets within the meaning of § 13b(2) ErbStG, but is granted up to the acquisition of beneficiary assets in the amount of EUR 26 million. If the acquisition goes beyond this threshold, §§ 13a and 13b ErbStG no longer apply. In these cases, however, the purchaser can submit an application pursuant to § 28a ErbStG (Response Requirement Test).
As a result of the rule exemption, beneficiary assets within the meaning of § 13b paragraph 2 ErbStG remain 85 % tax-free. The beneficiary assets are determined by deducting the administrative assets (§ 13b (4) ErbStG) from the value of the total operating assets. It should be noted, however, that 10 % of the operating assets are considered to be a ‘liberation allowance’ for administrative assets (so-called non-harmful administrative assets).
The control protection comprises 85% of the determined value. A further EUR 150,000 is to be deducted from the remaining taxable share (§ 13a paragraph 2 ErbStG). However, this further deduction amount is reduced by 50% of the remaining amount.
2nd Examples of the Application of Control Protection
Example 1: The beneficiary's assets are worth EUR 800,000. 85% of this is tax-free – EUR 120,000 remains. Since this amount is completely below the value limit of EUR 150,000, the entire acquisition is tax-free.
Example 2: The beneficiary's assets are now worth EUR 1.5 million. Of these, EUR 1.275 million is tax-free and EUR 225,000 is taxable. This amount exceeds the value limit of EUR 150,000 by EUR 75,000. The deduction is to be reduced by 50% of this (EUR 75,000 / 2 = EUR 37,500); EUR 150,000 – EUR 37,500 = EUR 112,500. An allowance of EUR 112,500 is deducted from EUR 225,000, leaving a taxable acquisition of EUR 112,500.
3. retention periods and wage amounts according to § 13a paragraph 6 ErbStG
The rule protection is dependent on compliance with certain requirements. The so-called retention periods and wage amounts are regulated in § 13a paragraph 6 ErbStG. The relevant conditions must be demonstrated by the purchaser of the business assets, otherwise the exemption granted may retroactively cease.
Specifically, the following conditions apply for the rule protection, whereby a retention period of 5 years must always be observed:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.