The beer route: an appropriate method to gift shares through a partnership to your closest heirs tax-free?
When taking over a family business as a result of death, inheritance tax must be paid. Often people want to avoid this and gift these shares to the next generation while they are still alive. In principle, however, one pays gift tax on this.
However, there are techniques to gift shares tax-free to your heirs. Either through a gift tax exemption or through the so-called beer route.
When can you enjoy an exemption?
The legislature provides for a rate of 0% for the gift of shares in a family company or business to encourage people to think about the succession of their business. However, the conditions to benefit from this are particularly strict.
Thus, the company or corporation must be engaged in a genuine economic activity. Real estate companies are thus excluded. Moreover, this economic activity must be continuously continued by the donee for at least three years. Therefore, the legislator puts strict emphasis on continuity. If the conditions are not met then the exemption is lost or not granted.
To make sure that you fall within the scope, you can ask the Flemish Tax Administration for a prior attestation showing that you can benefit from the favored regime.
The beer route: a worthy alternative to the gift of shares?
If you do not meet the strict conditions of the above exemption because there is too much real estate in your company, for example, you can opt for the beer route, being the successor to the cheese route which closed on December 15, 2020**.**
The beer route was put forward as a burgundy alternative, but does not use a notarized gift deed. The name already suggests that this route is located within national borders. It is a contribution to a partnership for the benefit of a third party. If parents wish to donate shares to their children, they can take advantage of this.
The donor must first set up a partnership with at least one other person. This is a corporate form with few formalities that can be set up privately. This cannot be done in a BV or NV because then a notarial deed is required and gift tax is thus levied.
Then the donor can either issue new shares and have them registered directly in the name of his/her (grand)children or the donor makes an additional contribution of assets that indirectly increases the value of his/her heirs' already existing shares.
In this way, one accomplishes an indirect donation for which one does not need to use a notary and thus avoids gift tax.
What are the pitfalls in going the beer route?
First, one should be aware that there are a suspect period of three years runs from the time the gift is made. If the donor dies within this period, the tax authorities will levy inheritance tax on the value of the gift.
It is therefore appropriate to prepare a private document, also known as a a pacte adjoint, which you can register if necessary through Myminfin or through the intervention of the notary. Your heirs will then only be required to pay the gift tax and avoid the higher inheritance tax rates. You can also register insure against this risk. In this case, the insurer will pay the gift tax if the donor dies within the three years.
Second, it is important to emphasize that you cannot gift shares through the beer route subject to usufruct. Thus, as a donor, you will not be able to reserve the proceeds of any dividends.
Finally, note that despite the fact that the Flemish Tax Administration ruled that the beer route does not constitute a tax abuse, some political parties are seeking its abolition.
In short, there are techniques for passing on your shares to your closest heirs virtually tax-free. Given the pitfalls that exist and the complexity of the matter, it is best to seek the assistance of a specialist in this area.
If you have any further questions regarding gifts of stock, please do not hesitate to contact us or leave a message on our website. Our attorneys will expertly guide you in planning your assets.
