Corona crisis: Family businesses face inheritance tax

Family businesses face inheritance tax levies if they lose jobs or go bankrupt as a result of the lockdown. A small and medium-sized business association warns of a "tsunami" for family businesses. The ZDH is calling for a hardship provision.

This article is part of the special topic: Restructuring, protective shield or insolvency?

The longer the lockdown lasts, the more businesses like trade fair stand builders, beauticians, tailors, and hairdressers are pushed to their limits. As if that weren't enough, family businesses also face the looming threat of inheritance tax . The inheritance and gift tax law actually exempts business successors.

They can even be completely exempt from inheritance tax payments if they continue running the business for five to seven years and largely maintain existing jobs (the so-called "payroll rule"). But what if a successor has to cut jobs due to the coronavirus crisis or, in the worst-case scenario, is forced to close the business altogether? Then they not only lose the business but also trigger retroactive inheritance tax.

Crafts demand a hardship regulation

"We have already raised this issue several times with members of parliament and the Federal Ministry of Finance," Carsten Rothbart, head of the tax and fiscal policy department at the German Confederation of Skilled Crafts ( ZDH), told the German Crafts Journal. The ZDH proposes, among other things, that no retroactive tax payments should be demanded in cases of hardship if the businesses did not become insolvent through their own fault due to government regulations or if a pandemic-related decline in the total wage bill can be observed.

"Unfortunately, politicians have so far shown no willingness to adapt the inheritance tax law to current circumstances," says Rothbart. This is incomprehensible.

What about short-time work?

At least: Short-time work within a company should not negatively affect the calculation of the average wage bill, which is relevant for the tax relief scheme. According to the tax authorities, reimbursement payments should not lead to a reduction in the wage bill.

However, the longer the shutdown lasts, the more difficult it will likely become for some businesses to survive. The association therefore intends to continue advocating "strongly for practical and appropriate changes" to inheritance tax law. The " Union of Medium-Sized Businesses " in Munich is already warning of a "tsunami" that will "sweep away" family businesses passed down through inheritance.