date | theme

24. July 2019 | Saving inheritance tax through chain gifting: deadlines and criteria

28. April 2020 | Inheriting shareholdings correctly – GmbH; GmbH & Co. KG; GbR

15. December 2021 | Avoid gift tax when gifting large assets

19. January 2022 | Reduce gift tax through usufruct on capital gains

31. March 2022 | Share transfer: Valuation of shares in partnerships in inheritance tax and gift tax (this contribution)

Shares in partnerships may be transferred by inheritance or donation. However, this share transfer requires the valuation of the shares in order to determine the amount of the inheritance tax and gift tax. The valuation of the share in a partnership is based on the principles of § 97 (1)a BewG. Accordingly, the common value of the partnership must be determined and divided. We explain what you need to consider when evaluating your stake in a partnership.

The valuation of a share is relevant if the shareholding is to be transferred by way of inheritance or donation. In order to determine the taxes on the share transfer, it is necessary to assess the share. The value of the share shall be determined separately.

The determination and distribution of the common value of the total assets among the shareholders is to be carried out in accordance with the regulation of § 97 (1)a (1) BewG. Accordingly, the shareholder is initially to be attributed the capital accounts from the total hand balance sheet. Then the remaining difference is to be divided among the shareholders according to the relevant profit distribution key.

In the context of inheritance tax and gift tax, the evaluation is based on § 12 ErbStG. Accordingly, the evaluation takes place after the first part of the BewG. Therefore, in the context of the valuation pursuant to § 9 BewG, the common value must in principle be used.

Insofar as an economic good belongs to several persons, its value must first be determined in accordance with § 3 BewG in its entirety. Then one could come to the idea that the shares are considered as independent assets that are accessible for a separate valuation. However, the law does not provide for this treatment. Rather, according to § 109(2) BewG, the shareholders participate in the assets of the economic unit of the partnership’s assets. Therefore, the value of the company’s operating assets must be determined in its entirety. Only then should this value be distributed among the participants according to the proportion of their shares.

According to § 97 paragraph 1a no. 1, the valuation of the company’s operating assets is governed by § 109 paragraph 2 BewG. The valuation is therefore based on the common value. This is to be determined according to § 109 paragraph 2 sentence 2 BewG according to § 11 paragraph 2 BewG. Therefore, the common value is to be derived primarily from sales between third parties less than one year ago. If this is not possible, the common value shall be based on the prospects of return or another accepted standard method. In addition, however, the simplified yield value method can also be used. How the simplified income value method for determining the common value works we have explained in one of our other contributions. In no evaluation method, however, can the substance value be undershot.

If, however, the common value of the assets has been determined, this must also be distributed among the partners of the partnership in the second step. The division of the value of the value of the operating assets of a partnership previously determined pursuant to §§ 109 II, 11 II BewG is then governed by § 97(1a) BewG. § 97 paragraph 1a BewG distinguishes between the division of the special assets according to § 97 paragraph 1a no. 2 BewG and the total assets according to § 97 paragraph 1a no. 1 BewG. The latter is the assets of the partnership. The addition of both positions then yields the value of a shareholder’s interest in the partnership.

Only in cases where the value of the share of a shareholder in the total assets is derived from a sale or the appraisal value is determined, the division according to § 97 paragraph 1a BewG is not to be made. These methods can be considered if the value is lower than that determined under § 97(1a) BewG. You should therefore calculate the value of your share average according to the different variants and then check which value is the lowest.

3.2.1 To be added to capital accounts

First, according to § 97(1a)(1)(a) BewG, the capital accounts from the total manual balance sheet are to be attributed to the respective shareholder. The capital account includes only those shareholder accounts which have an equity character. Accounts in which shareholder claims are recorded and which, from the point of view of the partnership, express external capital are not part of the capital account. For example, shareholder loans are debt capital. Decisive for the distinction between equity and debt is whether the account is subject to total commitment due to its participation in losses of the company. It therefore depends largely on whether losses are also booked on the respective account.

The capital accounts to be allocated include both the fixed capital (usually the so-called capital account I) and the share of a total reserve. In addition, the variable capital accounts are also included, as far as income tax is concerned.

Therefore, the value distribution is based on whether and to what extent the respective shareholder has provided the partnership with equity. Therefore, from an inheritance tax and gift tax perspective, it is often essential for the shareholder whether the share of the current profit is assigned to an individual reserve account or has been taken.

For example, the value of the total hand fortune can be 200,000 euros. Shareholders A and B each hold 50 percent of the shares. The sum of the capital accounts is 100,000 euros according to the total hand balance. Of these, 40,000 euros are attributable to the A while 60,000 euros are attributable to the B. These two amounts are therefore attributable to A and B respectively.

The value remaining after the allocation of the capital accounts is to be divided among the shareholders in accordance with § 97 (1a no. 1 letter b) BewG according to the relevant profit distribution key. This balance can of course be negative.

In the above example, there is a difference of 100,000 euros (200,000 euros total hand assets – 100,000 euros capital accounts). This amount should now be distributed between A and B according to the amount of their participation. Therefore, due to the 50 percent participation, 50,000 euros are attributable to both.

After this calculation, a negative amount may be attributed to a shareholder. If the shareholder transfers this share by way of donation or inheritance, the value of the share in the total hand assets according to R B 97.5 para. 2 sentence 2 ErbStR 2019 with 0 €. No negative value of the company’s total assets can be attributed to the limited partnership if the limited partnership contribution has been made in full and is not subject to additional payments.

But if at the same time the shares are transferred to other shareholders, a higher company value would be subject to inheritance tax or gift tax than actually exists. However, this is only noticeable when considering all share transfers overall. Although the transfer of operating assets under §§ 13a, 13b ff. ErbStG is generally favoured. Therefore, the impact is initially limited. However, if wage regulations or retention periods are violated in the following years, negative effects may subsequently arise as a result of the subsequent taxation.

In accordance with § 13b paragraph 2 ErbStG, the value of the administrative assets is to be deducted from the value just determined. The common value of the administrative assets remains in principle taxable. In addition, the eligible assets are not fully beneficiary in accordance with § 13b(2), second sentence, ErbStG, provided that the administrative assets constitute 90 % of the common value. On the other hand, a share of administrative assets of less than 20 % shall not be precluded.

Accordingly, the allocation and determination of the amount of administrative assets is of great importance. Administrative assets are attributable to the shareholder from the total assets according to the value of the shareholder’s participation in the common value of the total assets. As a result, an increased allocation of the common value to the total hand assets also results in an increased allocation of tax-damaging administrative assets.

The share of the shareholder in the total hand-to-hand assets calculated in accordance with the above scheme is therefore to be set in proportion to the value of the total hand-to-hand assets. The percentage determined from this also makes up the share of administrative assets. Consequently, the calculation of the share of the total hand assets also affects the allocation of the administrative assets. Accordingly, it is also decisive here how much equity capital the shareholder provided the company. Therefore, you should keep your capital accounts carefully.

Specialised advice on inheritance tax and gift tax?

The total assets of the shareholders and the special assets belonging to the shareholder under civil law are to be valued separately. This achieves simplification. Otherwise, the special assets of all shareholders would have to be included and removed in the subsequent division.

The active and passive assets of the special business assets are to be measured at the common value determined according to the BewG. They are assigned directly to the shareholder. Such assets, which are jointly owned by several members, are attributed to the members with the fraction falling on them.