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What’s the tax bill for transferring a family business?

Tax bill for transferring a family business

KPMG Enterprise report finds wide variation among countries worldwide.


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For business families planning to transfer their business from one generation to the next, the tax costs can vary widely, depending on where the business is located according to the KPMG Enterprise global family business tax monitor. Some countries offer substantial tax breaks to help family businesses succeed and grow in the hands of the next generation while other countries tax transfers within families in the same way as any other transaction, creating significant costs.

Canada, Venezuela and Japan are among the countries that impose the highest taxes on family business transfers on death, even after you claim all available tax breaks. Other countries – like China, New Zealand and Nigeria
– apply no special taxes on these transfers at all. Between the extremes, tax outcomes vary widely. Western economies tend to impose higher taxes on family business transfers during lifetime and through inheritance, than emerging economies.

The report revealed 5 key developments which are likely to have a profound influence on family businesses around the world in the years to come as they develop their succession plans:

  1. In many countries the shadow economy is widespread and many family businesses operate outside of formal business structures. Informal businesses are encouraged to enter the legal economy.
  2. Increasing longevity has the potential to disrupt business succession plans, as owners seek to remain active in the business until a later age and, in turn, more family members are living off the family business assets.
  3. Many millennials think globally, have socially conscious values and tend to have philanthropic goals. Rather than taking a traditional role in the family business, millennials may have other ideas on how the family wealth should be deployed.
  4. For family businesses in the United States, the country’s recent tax reforms have dramatically improved the tax relief available on family business transfers. “US family businesses should consider making transfers of wealth during life to minimize their transfer tax liability at death,” says Mr. Greg Limb, Head of International Private Wealth, KPMG Enterprise in the UK. “Doing so may keep future appreciation from being subject to transfer tax”.
  5. As the UK and the EU are still working out how Brexit will unfold, the implications for family businesses in the UK are unknown. “UK-based family businesses should think through potential talent management issues that could arise due to changes in the immigration status of employees,” says Mr. Tom McGinness, Co-chair KPMG Enterprise Family Business and Partner, KPMG Enterprise in the UK. “Family businesses should make contingency plans to minimize any business disruption with parties in the EU once Brexit’s final terms are known.”

While commenting on the report’s findings in which our country participated, Mr. George Markides, Board Member and Head of Tax at KPMG in Cyprus, noted: “As far as the reality of the Cypriot family businesses is concerned, tax is not, at least for the moment, the deciding factor in planning for family business transfers. Succession plans are usually aligned with the family’s values and purpose.

“A sound business rationale should underpin all decisions concerning the future of the family businesses; early and informed planning is crucial in ensuring that both the business and the family will prosper for generations to come”, added Mr. Demetris Vakis, Board Member and Head of Family Business at KPMG in Cyprus.

About the Global family business tax monitor report

The Global family business tax monitor is based on the findings of 65 countries, regions and jurisdictions who undertook a taxation review on two case studies providing details on how their local tax regulations would apply to each case. The study explores the effects taxation can have on the transfer of the business to family members upon inheritance and as a lifetime transfer (on retirement).

KPMG Enterprise Global Center of Excellence for Family Business

As with your family, your business doesn't stand still -- it evolves. Family businesses are unique and KPMG Enterprise Family Business advisers understand the dynamics of a successful family business and work with you to provide tailored advice and experienced guidance to help you succeed. To support the unique needs of family businesses, KPMG Enterprise coordinates with a global network dedicated to offering relevant information and advice to family-owned companies. We understand that the nature of a family business is inherently different from a non-family business and requires an approach that considers the family component.

Visit: Running a family business

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