Succession refers to the process of inheriting or taking over a position, title, property or office after the previous holder retires, dies or otherwise ceases to hold the position. Tax succession means that the acquirer enters into the departing party's tax position. This can in some cases happen during the departing party's lifetime and upon death. Special rules apply in Denmark in this regard.
Frequently Asked Questions About succession
What does tax succession mean?
Tax succession means that the recipient of an asset or a business takes over the transferor's tax position.
This means that the taxation of any gain is postponed, as no taxation occurs at the time of transfer.
Instead, the transferor's acquisition date, acquisition sum and other tax circumstances are carried forward to the recipient, who thereby enters into the transferor's tax rights and obligations.
Can there be tax succession in shares?
Tax succession in shares can occur when the shares are transferred within the immediate family, and certain conditions regarding ownership and connection to the business are met. This means that the recipient takes over the transferor's tax position, including acquisition date and acquisition sum, so that the taxation of any gain is only triggered when the recipient later sells the shares.
What is the difference between succession during lifetime and succession by inheritance?
In succession during lifetime, the business or the assets are transferred between living persons, typically as part of a succession, where parents or an owner transfer the business or shares to children or close employees. The transfer can take place as a gift, partial gift or at market value, and the recipient takes over the transferor's tax values and obligations.
In succession by inheritance, the transfer only takes place upon the owner's death. Here the succession happens automatically if the heir takes over the business or the assets as part of the inheritance distribution. The estate carries out the transfer, and the heir enters into the deceased's tax position.
In both cases, no tax is triggered at the time of transfer, but only when the heir or recipient later disposes of the assets.
What happens with gift tax in succession by gift transfer?
In succession by gift transfer, gift tax must as a general rule be paid.
No tax is triggered for the donor (the transferor), because the recipient takes over the tax values.
Instead, gift tax is paid on the difference between the asset's market value and the amount the recipient pays for the transfer.
This means that the gift tax is reduced because the recipient takes over a deferred tax liability. This deferred tax is considered part of the payment for the asset.
Which assets cannot be transferred with tax succession?
Certain assets cannot be transferred with tax succession because they either do not meet the conditions of the law or are not considered business assets.
The following assets cannot as a general rule be transferred with succession:
1. Private assets
2. Liquid assets
3. Properties without business use, e.g. rental properties that are not part of a real business
4. Shares in companies without real business activity, e.g. holding companies that exclusively own cash holdings or passive investments.
Can there be succession in retained earnings under the business tax scheme?
Yes, succession can occur in retained earnings under the business tax scheme when the business is transferred with tax succession.
This requires that the entire business is transferred as a whole, and that the recipient continues the business in the business tax scheme.
The recipient thereby takes over the retained earnings, the withdrawal order and any capital accounts from the transferor.
The taxation of the retained earnings is postponed, and only when the recipient later withdraws the earnings does taxation occur.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.