The family business tax framework may be a good financial strategy for taxpayers affected by the new Temporary Solidarity Tax on the Great Fortunes (ITSGF).
Family businesses enjoy advantages aimed at safeguarding productive assets in order to facilitate the survival of companies over time. Family business assets receive differentiated and harmonised tax treatment in all autonomous regions:
- Exemption in Wealth Tax on the value of the family company. On the other hand, an entrepreneur who owns the business or shares of a non-family company must be taxed on them in his Wealth Tax and the ITSGF, according to the value of the company.
- Inheritance and Gift Tax rebate. In some autonomous communities it reaches 99% of the value of the family business.
- Deferral in personal income tax of the capital gains arising from donations of shares or holdings.
How to plan your family business to save ont the ITSGF
As we have seen, setting up a family business not only allows direct savings to be made in the amount of the Solidarity Tax on Large Fortunes, but also benefits the following generations. This is because the family business regime allows a large part of the taxation generated by the Inheritance and Gift Tax to be reduced.
In addition, the tax on large fortunes exempts assets and rights taxed under Law 19/1991, of 6 June 1991, on Real Estate Tax (IBI). This means: cultural assets, permanent residences up to 300,000 euros and also family businesses. The aim is to prevent the possible relocation of this type of capital abroad.
But in order to take full advantage of all its benefits, it is important to point out that the company created must fulfil a number of conditions:
- It cannot be an asset-holding company whose main purpose is the management of movable or immovable assets. It must be an operating company with economic activity and at least 50% of its assets must be assigned to the development of the business activity.
- Other members of the business family must own at least 20% of the company, or 5% individually. These family members can be the spouse as well as ascendants, descendants and collaterals up to the second degree.
- The management of the company must be in the hands of a member of the family shareholder. The remuneration received for this work must amount to more than 50% of his or her income from work and business activities.
- In case of inheritance, the shares must be held for at least 10 years.
Little room for manoeuvre to redevelop assets
During the two years that the ITSGF will be in force, the government estimates that it will affect almost 23,000 taxpayers and raise 1.5 billion euros annually. However, it should be remembered that the legislative text leaves the door open to extending it for a longer period.
The ITSGF has been approved in record legislative time. Moreover, this tax is already levied on wealth in 2022, even though it is payable in 2023. This has left the wealthy with little time to reorganise their wealth.
Looking ahead to 2023, setting up a family business can be a way to save on the new wealth tax. However, this strategy requires careful planning by family business experts.