Inheritance Tax When Transferring a Family Business

When the tax can be zero

When a family business is transferred to children or other heirs, a tax almost always applies. This tax is usually called inheritance tax or gift tax.

The part most people miss: in many countries, family businesses are taxed under special rules. If the structure is planned in advance, the tax can be reduced — sometimes to 0%.

Why a business is not “ordinary” inheritance
Apartments, cash, and investments are usually taxed under standard rules. A business is different.

Governments try to protect operating companies: keep jobs, avoid forced sales, and preserve continuity. That’s why many systems include inheritance tax relief for an operating family business — but only if you meet the conditions.

The typical scenario
An owner wants to pass an active company to their children. The business has employees, clients, and real operations.

The risk is simple: a high inheritance tax bill can force the family to sell part of the company, take on debt, or lose control. The outcome depends less on “the country” and more on the details.

How countries reduce inheritance tax on family businesses

1. Relief for continuing the business
   Tax is reduced or eliminated if the company keeps operating after the transfer.
2. Relief for keeping control in the family
   The business can’t be sold, and control must remain with the heirs for a set period.
3. Relief linked to employment
   Some systems require maintaining jobs or payroll levels.
4. Regional rules
   In decentralized countries, requirements can vary by region.

Examples: how this works in practice

🇫🇷 France
Formal inheritance tax between parents and children can reach 45%. For family businesses, a special regime may apply: up to 75% of the business value can be excluded from tax, if the business and management are kept for a required period.

🇩🇪 Germany
Germany offers strong protection for family businesses: 85% or 100% exemption can apply, typically tied to continued operations and employment conditions. The business generally can’t be sold for 5–7 years.

🇪🇸 Spain
Spain is highly regional. Formal tax rates can be high, but in practice inheritance tax on family businesses is often close to 0% for children due to regional reliefs. The trade-off: structure matters, and planning mistakes can cancel the exemption.

What most often breaks the exemption

1. The business is classified as passive rather than operating.
2. The ownership structure doesn’t meet the legal requirements.
3. Heirs don’t participate in management when participation is required.
4. Planning starts after the inheritance process begins.
5. The business is sold too early.

What information is needed for a preliminary analysis
To assess inheritance tax and potential relief, you typically need:

1. Owner’s country of tax residence.
2. Country where the company is registered.
3. Business type: operating company or holding.
4. Ownership percentage.
5. Who the heirs are (children, spouse, others).
6. Whether heirs will keep management/control.
7. Timing: lifetime transfer (gift) vs inheritance.

Where automated analysis stops
AI can identify likely relief mechanisms, explain conditions in plain language, and highlight risks. An expert is needed when multiple countries are involved, regional rules apply, or restructuring is required.

FAQ

Is there inheritance tax when transferring a business to children?
Usually yes. But many countries provide special inheritance tax relief for family businesses if conditions are met.

Can a family business be transferred with zero tax?
Sometimes. It depends on whether the business is operating and whether the heirs keep control and follow the rules for the required period.

Which country has the lowest inheritance tax on businesses?
There’s no universal answer. Structure and compliance often matter more than the headline country rate.

When should planning start?
Before the inheritance event. After the process begins, many reliefs are no longer available.

Is a holding structure a problem?
It can be. Some exemptions apply only to operating businesses, not passive holding structures.

Does this apply to small businesses?
Yes. Size is often less important than real economic activity and compliance with the rules.