Selling a family business is a complex process. Particularly in light of constantly changing legislation (with the much-discussed capital gains tax looming large), a watertight business plan and a well-founded legal structure are essential to maximise the value of the ‘bride’.
At the latest M&A Summit, Florian Jacobfeuerborn (Partner, M&A Tax) and Estate Planner Lennert Jeurissen from PwC explained how to go about this.
One pitfall that Jacobfeuerborn sees all too often in the sale process of family businesses is starting preparations too late. “A great deal of crucial knowledge is often held solely in the minds of the founders or the C-suite. If you’re preparing for a transaction and you really want to present your business as an attractive prospect, there’s work to be done on documenting and presenting the business plan, the business model and enhancing financiel reporting.” Besides tax and legal considerations are to be considered well in advance.
From 0 to 10 percent
A recurring theme in today’s M&A world is the new capital gains tax on shares. Many entrepreneurs break out in a cold sweat at the mere mention of that term. After all, capital gains on shares are currently, in principle, exempt from tax, unless in certain specific circumstances, e.g. ‘abnormal management of private estate’, in which case the capital gain is taxed at 33 percent + local taxes.
However, the new legislation, which has just been approved by the Chamber of Representatives, provides for a 10 percent rate on capital gains accrued from 1 January 2026. “A ‘snapshot’ date has been set for 31 December 2025”, explained Jacobfeuerborn. “Any value accumulated before that date will not be subject to the new tax. Everything after that date will be.”
For family businesses, another crucial rule comes into play: the number of shares a shareholder holds. If the shareholding represents 20 percent of the total capital, the shareholder is subject to progressive rates, with the first million euros of capital gains remaining exempt. “From one to two million euros, the rate is 1.25 percent,” he explains. “And it rises progressively up to capital gains exceeding ten million euros. From that point onwards, a rate of 10 percent applies there too.”
Determining the reference value at the end of 2025 will certainly not be a straightforward exercise, warned Jacobfeuerborn. Companies without recent external transactions will have to rely on a specific formula (four times the EBITDA plus equity) or an economic valuation by an external auditor. “It is better to do this as soon as possible, in tempore non suspecto,” advised Jacobfeuerborn. “That way, you can to a higher extent avoid disputes with the tax authorities over the reference value used.”
What about cash?
Another hot topic is the cash held within a company. Selling a business with substantial cash reserves may be challenged by the tax authorities based on anti-abuse provision if there is excess cash. Jacobfeuerborn recommended conducting an economic analysis of the cash position to build a defense file: “Not all cash is excess cash.”
Separation of real estate
Real estate also requires a specific approach, often via a carve-out. After all, families often want to sell the business but retain the property at the same time, to diversify risks. Financial investors are on the other hand side often only interested in the business. This can be achieved through a sale, but also via tax-neutral alternatives, whereby obtaining a ruling is often recommended. “This is always a bespoke exercise that can be highly complex as various structuring alternatives have can have different impacts on both the sell side and the buy side”, emphasized Jacobfeuerborn.
Holding
Another critical point in the preparation for a sale is the role of a potential holding company, whereby the sale of a pure passive holding could be investigated by the tax authorities.
However, not every holding company is by definition ‘passive’ or should be suspect, Jacobfeuerborn clarified: “You can have holding companies with various shareholdings or with C-suite management at that level. There may be a procurement function or other functions.”
The key word here is ‘substance’. A holding company with an active business or that effectively provides services to the group or manages various interests has a much stronger case to present to the tax authorities. Indeed, the holding very often is an active HQ, essential to the business and its expansion (and hence essential in case of a divestment).
“Even if there is no immediate transaction in the near future, it is already wise to think about a potential exit and what the structuring around it might look like.” advised Jacobfeuerborn.
Family dynamics
M&A transactions within families often go hand in hand with succession planning. It is best to start this process early too, warned Lennert Jeurissen. “Structuring the exit proceeds actually begins years before a deal is even considered, in order to maintain complete flexibility,” he states. “A fundamental question is whether the family opts for succession or an external sale. In the case of family succession, the dynamics and patterns of interaction between family members are crucial.”
According to Jeurissen, it is also essential to understand the next generation’s ambitions in good time: “Parents sometimes assume that their children will take over the business anyway, but if they want to go their own way, an external sale is often a more appropriate solution.”
In all considerations, the tax regime for family businesses certainly plays an important role in succession planning. This allows shares in family businesses to be gifted tax-free or inherited at a flat rate, provided certain conditions are met (such as maintaining the registered office within Europe and carrying out genuine economic activity). In the event of a sale, however, one must be mindful of the shareholding requirement: families retaining dropping below certain shareholding percentages may lose the favorable tax regime after deal.
Death and taxes
Following a successful sale, the proceeds must, of course, also be managed properly. Families may, for example, opt for a family office to invest, possibly together with co-investors. The establishment of a family holding company for the exclusive management of the capital is also a possibility.
To retain control over gifted assets, a civil partnership (“maatschap” / “société simple ”) is often used. “This partnership without legal personality is fiscally transparent and discreet”, explained Jeurissen. “It is actually a kind of agreement between shareholders to hold assets in undivided ownership. It allows parents to retain control as managers, whilst the beneficial ownership already lies with the children.”
Jeurissen warned, however, that there are currently certain uncertainties around partnerships and the new capital gains tax as the dissolution and distribution of assets may in certain cases trigger a tax liability. Further developments need to be monitored and alternatives may have to be considered.
“There are two certainties in life: we all die and we all have to pay taxes”, concluded Jeurissen. The combination of these two certainties underscores the necessity for timely estate planning. This proactive approach helps families avoid losing a significant portion of their life's work to inheritance taxes."
READ ALSO: Building Hillewaere: A firsthand account of Roel Druyts’ buy-and-build journey
