The Family Company as a Succession Instrument
The family company has established itself as one of the most effective instruments for tax-optimised business succession and the preservation of wealth across generations. It not only enables significant inheritance tax savings through the relief provisions of §§ 13a, 13b ErbStG, but also creates a legally sound structure for asset management across generations.
Tax Saving Potential: With correct structuring, inheritance taxes of up to 85–100% can be avoided through the business relief provisions. A family company with assets of EUR 2 million can thereby save inheritance taxes of up to EUR 600,000.
Ten Core Functions of the Family Company
A professionally structured family company fulfils the following core functions:
- Reduction of inheritance disputes – Clear corporate law provisions prevent disputes between heirs
- Protection against inheritance outside the family line – Succession clauses secure assets within the family
- Minimisation of compulsory share risks – Qualified succession clauses minimise supplementary compulsory share claims
- Prevention of deadlock situations – Structuring of voting and disposal rights
- Protection against dissipation by heirs – Disposal restrictions and distribution provisions
- Provision for inactive shareholders – Disproportionate profit distribution to support non-operationally active family members
- Financial reward for active shareholders – Performance-related remuneration for managing directors
- Income and gift tax optimisation – Use of tax allowances every ten years (§ 14 ErbStG)
- Asset Protection – Protection against creditor access and insolvency
- Clean separation of private and business assets – Clarity for liability and taxation purposes
Legal Forms of the Family Company
1. The Registered Civil Law Partnership (eGbR)
Since 1 January 2024, civil law partnerships (Gesellschaft bürgerlichen Rechts) can be registered in the partnership register (§§ 707–707d BGB as amended by the MoPeG). This brings significant advantages for asset-managing family companies.
Civil Law Advantages of the eGbR
- Extensive contractual flexibility (§ 708 BGB) – Flexible adaptation to family structures
- No unlimited liability with structured arrangements involving purely asset-managing activities
- Land register eligibility without disclosure of all shareholders (§ 47 GBO new version) – Protection of privacy
- Transfer of GbR interests without notarial certification – Cost savings in succession planning
- Legal capacity (§ 705(2) BGB new version) – The GbR can itself acquire rights and enter into obligations
Tax Advantages of the eGbR
- Asset management without trade tax – No trade tax applies to purely asset-managing activities
- Flexible profit distribution per capita or independent of shareholding ratio (§ 722 BGB)
- Real estate transfer tax exemption with correct structuring (§ 5 GrEStG)
- Fractional ownership treatment under § 39(2)(2) AO enables tax-optimised structures when contributing real property
Recent Case Law on Family Companies
BGH of 3 June 2020 (IV ZR 16/19, BStBl II 2020, 843):
The accretion of a shareholder’s interest to the surviving shareholder upon death, agreed in a two-member asset-managing civil law partnership with exclusion of a compensation claim, may constitute a gift within the meaning of § 2325(1) BGB.
Practical implication: Qualified succession clauses with exclusion of compensation must be carefully structured to minimise supplementary compulsory share claims under § 2325 BGB. An appropriate compensation arrangement is recommended.
BFH of 4 June 2025 (II R 18/23) – Family Home Privilege:
If a spouse gratuitously transfers the family home to a GbR in which both spouses hold equal shares, the other spouse is enriched for gift tax purposes by half the value of the family home. The acquisition of joint ownership (Gesamthandseigentum) of a family home is also covered by the tax exemption under § 13(1)(4a)(1) ErbStG.
Practical implication: The contribution of a property used for the couple’s own residential purposes into the joint assets of a spousal GbR falls within the gift tax exemption. This opens up significant structuring possibilities for asset planning.
2. The GmbH & Co. KG as a Family Company
The GmbH & Co. KG is suitable where a more professional structure with limited liability is desired. Of particular interest is the so-called de-commercialisation (Entprägung) to avoid the commercial characterisation.
The Particularity of De-commercialisation
A GmbH & Co. KG is generally commercially characterised (§ 15(3)(2) EStG). For asset-managing family companies, however, this can be avoided by:
- Appointing at least one natural person as a limited partner (Kommanditist) to serve as managing director
- Actual management by that person (not merely formal appointment)
Tax Consequences of De-commercialisation
- ✓ No trade tax on rental income – Saving of 10–16% depending on the local authority’s multiplier
- ✓ No taxable business assets – Private assets with advantages for inheritance tax purposes
- ✓ Speculation periods under § 23 EStG expired after ten years – Tax-free disposal of real property
⚠️ Warning – BFH case law:
If commercial characterisation is subsequently established, this triggers a deemed business commencement with disclosure of hidden reserves! This can result in significant tax back payments.
Tax-Optimised Routes into the Family Company
1. Contribution of Private Real Property – Speculation Tax Risks
General rule: The contribution of private real property into a partnership is tax-neutral to the extent that the fractional ownership quota is maintained (§ 39(2)(2) AO).
Practical example – BFH of 18 October 2011 (IX R 15/11, BStBl II 2012, 205)
A wife contributes a property together with loan liabilities into a GbR in which she holds a 90% interest. The husband holds a 10% interest.
BFH ruling:
- The assumption of liabilities by the husband (10%) constitutes acquisition costs
- The wife has thereby carried out a part-consideration transaction
- For real property within the 10-year speculation period (§ 23 EStG), speculation tax may apply!
Structuring note: Before contributing, check:
- Has the 10-year period under § 23 EStG expired?
- Are liabilities being transferred as well?
- Are the shareholders already holding equal proportionate interests in the GbR?
2. The Matrimonial Property Swing Model as a Tax Trap
A popular structuring model is the so-called matrimonial property swing (Güterstandsschaukel):
Process:
- Termination of the community of accrued gains by marital agreement (§ 1408 BGB)
- Equalisation of accrued gains under § 1378 BGB
- Satisfaction by transfer of real property – tax-free under § 5(2) ErbStG
- Reinstatement of the community of accrued gains
⚠️ But caution – BFH of 12 July 2005 (II R 29/02, BStBl II 2005, 843):
The satisfaction of the accrued gains equalisation claim is an arm’s length transaction! Upon transfer of:
- Real property: Application of § 23 EStG if still within the speculation period
- Shareholdings: § 17 EStG (disposal of significant participations)
- Securities: § 20 EStG
Recommendation: Only transfer assets that fall outside the speculation periods!
Inheritance and Gift Tax Optimisation
1. Relief Provisions under §§ 13a, 13b ErbStG
Basic Principle of Business Relief (§ 13a ErbStG)
Qualifying assets remain:
- 85% tax-exempt (standard relief) or
- 100% tax-exempt (optional relief)
Requirements:
- Business assets, agricultural and forestry assets, or shares in corporations (minimum 25%)
- Payroll sum rule complied with (§ 13a(3) ErbStG)
- Retention period of 5 or 7 years observed (§ 13a(6) ErbStG)
- Administrative assets not exceeding 10% (§ 13b(2)(2) ErbStG)
Important amendment for real property – § 13b(4)(1)(d) ErbStG
Rented residential properties held in a GmbH have been eligible for relief since 2016, provided that:
- The main purpose consists in the letting of residential units (§ 181(9) BewG)
- The fulfilment of this purpose requires a commercial business operation (§ 14 AO)
- At least 66⅔% residential use exists
Practical example: A property GmbH holding a residential building with 10 flats benefits from the inheritance tax relief and is not classified as harmful administrative assets.
2. Recent Administrative Assets in Restructurings
Joint decrees of the supreme tax authorities of 13 October 2022 (BStBl I 2022, 1517):
In conversions and contributions, recent administrative assets arise (§ 13b(7)(2) ErbStG) where:
Recent administrative assets arise in the case of:
- Mergers (including upstream, downstream, and lateral mergers)
- Spin-offs and hive-downs
- Contribution of a sole proprietorship into a partnership
- Change of legal form of a corporation into another corporation
No recent administrative assets arise in the case of:
- Change of legal form between partnerships (e.g. GbR → KG)
- Change of legal form from partnership to corporation
- Admission of additional shareholders without contribution of administrative assets
Practical relevance: Planning for business succession must complete restructurings at least 2 years before the gift/inheritance event!
3. Chain Gift to Optimise Tax Allowances
Structuring model: Father → Mother → Children (instead of directly Father → Children)
Tax effect:
- Direct gift: 1 allowance of EUR 400,000 per child (§ 16 ErbStG)
- Chain gift: 2 allowances (Mother → Children: EUR 400,000 + Father → Mother: EUR 500,000)
⚠️ But risk under § 42 AO (abuse of legal structuring):
The tax authorities only recognise chain gifts where:
- There is a time gap between the gifts (recommendation: at least 1 year)
- There is no legal or economic compulsion to pass on the gift
- The intermediate recipient has genuine power of disposal
Note: BGH case law on this matter is still pending – a conservative approach is recommended!
Real Estate Transfer Tax in Family Companies
Real Estate Transfer Tax-Free Transfers under § 3 GrEStG
Personal exemptions (§ 3 GrEStG):
- No. 2: Gifts (including part-consideration transfers, to the extent gratuitous)
- No. 4: Transfers between spouses and registered civil partners
- No. 6: Transfers between relatives in the direct line (parents ↔ children, grandparents ↔ grandchildren)
Including stepchildren and their spouses!
Contribution into a Partnership – § 5 GrEStG
General rule (§ 5(2) GrEStG): Contribution is tax-free to the extent the contributing party holds a proportionate interest in the joint assets.
Example:
A contributes property into AB-GbR
A holds a 50% interest, B holds 50%
Real estate transfer tax: 50% of the property value (B’s share)
Post-contribution retention period – § 5(3) GrEStG:
If the contributing party’s interest decreases within 10 years, real estate transfer tax arises retrospectively!
⚠️ Important exception for gifts – BFH of 7 October 2009 (II R 58/08, BStBl II 2010, 302):
The post-contribution retention period under § 5(3) GrEStG is to be teleologically reduced in the case of gifts – no real estate transfer tax applies to gratuitous transfers to family members!
Current Real Estate Transfer Tax Reform 2024 – JStG 2024
Key amendments as of 1 January 2024:
Share Deals:
Previously: 90% share transfer → real estate transfer tax
Now: Only at 100% share transfer → real estate transfer tax
New concepts:
- Acquirer group (§ 1(3a) GrEStG draft): Several persons acting together in a coordinated manner
- Serving interest (§ 1(3b) GrEStG draft): Nominee constellations are captured
Property attribution – § 1(4a) GrEStG (new under JStG 2024):
The newly introduced § 1(4a) GrEStG defines for the first time the attribution of a property to the assets of a company for real estate transfer tax purposes. This prevents the double attribution of properties to the assets of two companies as a result of prior share transfers.
Application: For acquisition transactions after 5 December 2024.
Minors in the Family Company
Representation and Approval Requirements
General rule – §§ 1629(2) BGB, 1824 BGB:
Parents may not represent minors in:
- Legal transactions with themselves or close relatives (§ 181 BGB)
- Cases where several siblings participate in the same company
Solution: Appointment of a supplementary guardian (Ergänzungspfleger) by the family court (§ 1909 BGB)
Family Court Approval under § 1852 BGB (new, from 2023)
Required for:
- Acquisition or disposal of a commercial business
- Acquisition or disposal of a share in a company that operates a commercial business
- Conclusion of a partnership agreement for the operation of a commercial business
Distinction between Asset Management and Commercial Business
OLG Munich of 3 January 2018 (2 WF 150/17):
Indicators of asset management:
- Sole purpose: management and preservation of own assets
- Prohibition of commercial activities
- Exclusive participation of family members
- Small limited partner contribution
Indicators of commercial business:
- Commercially usable real property with intention to realise value
- Planned acquisition of further assets
- Considerable scope/value of assets
- Entrepreneurial risk
Practical recommendation: In case of doubt, obtain approval – legal transactions without approval are in a state of pending invalidity!
