New rules for business succession - what does it mean for you?

The government has introduced a new bill that makes it easier and more advantageous to transfer businesses to the next generation.

The changes include a lower estate and gift tax, a more predictable valuation and an expansion of the circle of family members who can take over a business on favorable terms. These changes are part of a larger effort to strengthen Danish family-owned businesses and ensure a smoother transition between generations.

Lower tax on generational change

One of the most significant changes in the bill is the reduction of the estate and gift tax from 15% to 10% when transferring businesses to close family members. This change means that the financial pressure of generational succession is significantly reduced. This can be a great benefit for business owners who want to pass on their life's work to the next generation without placing an unnecessary financial burden on them.

The lower tax can also make it more attractive to plan a generational change earlier, as the financial consequences of a handover will be smaller. This can give the new generation better opportunities to continue and develop the business without having to take out large loans or find alternative financing methods.

New model for valuation

To create more predictability for businesses, a schematic valuation model is introduced. The model is based on the company's average profit over the last five years and is designed to make it easier for owners to plan a succession without the risk of unexpected tax consequences.

This means that there will be greater transparency in how the value of the company is calculated in connection with a generational change. In the past, there has often been uncertainty and disputes around valuation, creating challenges for both owners and heirs. The new model ensures that generational transitions become more consistent and predictable, which can lead to fewer disputes and a smoother transition.

New model for valuation

To create more predictability for businesses, a schematic valuation model is introduced. The model is based on the company's average profit over the last five years and is designed to make it easier for owners to plan a succession without the risk of unexpected tax consequences.

This means that there will be greater transparency in how the value of the company is calculated in connection with a generational change. In the past, there has often been uncertainty and disputes around valuation, creating challenges for both owners and heirs. The new model ensures that generational transitions become more consistent and predictable, which can lead to fewer disputes and a smoother transition.

Inclusion of rental properties

One of the significant changes in the new rules is that from January 1, 2025, family-owned businesses with active rental of properties can be transferred with tax succession. Previously, businesses primarily engaged in property rental have not had the same advantages as other commercial businesses when it comes to succession.

This change means that real estate businesses can now be transferred within the family without high tax costs, which could have a major impact on the real estate industry. It also allows more businesses to plan for succession without having to liquidate or sell parts of their real estate portfolio to pay taxes.

Expanding the circle of related parties

From January 1, 2027, siblings will be considered close family members for estate and gift tax purposes. This means that businesses can be transferred between siblings at the reduced tax rate, which was previously not possible.

This change gives businesses greater flexibility when it comes to succession, as it is no longer just parents and children who can benefit from the relaxed rules. This can be particularly relevant for businesses where siblings have run the business together for many years, but where the formal ownership structure may have been limited by the previous rules.

What does it mean to you?

If you are considering transferring your business to your children or other family members, you should take these new rules into account. With lower taxes and a more transparent valuation, it can be beneficial to plan the succession well in advance.

You may want to consult with an accountant to ensure the best possible solution for both business and family. A well-planned handover can ensure the business continues to thrive while minimizing financial burdens.

Do you have questions about succession planning or want advice on how to best prepare? Contact us today for a no-obligation conversation.

Do you need advice?

At BUUS JENSEN, we have many years of experience advising on succession and business structuring. We are ready to help you navigate the new rules and find the best solution for you and your business.

Contact us today for a no-obligation conversation - we are ready to help you further!