Maximizing Tax Benefits: Donating Business or Company Securities with Low Tax Costs

The donation of an individual business or company securities can be made with a very low tax cost.

Who says better ? Certain conditions being assumed to be met, the duties due on the transfer by donation of an individual business or of shares or shares in a company are calculated on a basis reduced by a reduction of 75%.

To this advantage is added, subject only to the transfer being made in full ownership and before the age of 70, a reduction of 50% on the amount of duties normally due. Sesame to benefit from these exceptional advantages: the conclusion of a “Dutreil” conservation commitment.

But if we also take into account other more general benefits, the results become truly impressive. No less than seven tax advantages are likely to come into play cumulatively!

1^is advantage : the deductibility of debts on transferred assets (article 776 to you CGI)

A big change took place about twenty years ago. Since this time, debts which had been contracted for the acquisition of property subject to a donation – in particular property allocated to the operation of an individual business or shares or shares in a company – can be deducted from the value of the latter for the calculation of gift taxes when they are charged to the donee.

This assumption of rights by the donee must be specified in the deed of donation and notified to the lending institution. But if the latter must therefore be kept informed of the transfer of the debt to the donee, his consent to the operation is in no way required.

2^e advantage : the application of the Dutreil reduction of 75% (articles 787 B and 787 C of the CGI)

Initially reserved for transfers by death, the Dutreil reduction was subsequently extended to transfers by donation.

Consequence: the conditions of application specific to the Dutreil system being assumed to be met (see box), the value of individual companies or shares or shares of companies is now subject to a 75% reduction for the calculation of gift taxes . Reductions to which are added in certain cases additional reductions.

3^e advantage : the application of the special allowance of 300,000 euros (article 790A of the CGI)

In the event that transmission by donation of an individual business or of shares or shares in a company is made to one or more of its employees, the latter have the possibility of opting for the application of a reduction of 300,000 euros on the fraction of the value of this company or of the shares or shares representing the goodwill. This advantage, which can be claimed even by employees who are related to the donor (for example his children), can be combined with the 75% Dutreil reduction.

However, in the event of an option for the reduction of 300,000 euros, the Dutreil reduction only applies to the sole fraction of the value of the individual business or of the shares or shares of the company representing the value of the goodwill, excluding the value of other operating elements (premises, equipment, stock, etc.).

4^e advantage : the application of the common law reduction

Once the 75% reduction has been applied and, where applicable, that of 300,000 euros on the remaining fraction, the common law reduction remains to be applied (100,000 euros for transfers between parents and children).

Remember that common law allowances apply to all gratuitous transfers (donations and inheritance) occurring between the same people over a period of fifteen years.

5^e advantage : 50% reduction on the amount of duties (article 790 of the CGI)

Provided that the company’s donation is made before the age of 70, the amount of rights as it results from the application of the scale is subject to a reduction of 50% as long as the conditions of the Dutreil reduction are met.

6^e advantage : rights payment facilities (article 397 A of appendix III to the CGI)

While gift tax must normally be paid in full at the time of registration of the deed, payment of gift tax can be deferred for five years and then, at the end of this period, be divided over ten years.

Granted subject to the payment of interest (see below) and the provision of guarantees for the benefit of the Treasury, this advantage can only apply if the donation concerns all of the assets allocated to exploitation (individual companies ) or at least on 5% of the share capital (companies).

7^e advantage : very advantageous credit conditions (article 404 GA of annex III to the CGI)

Normally equal to two thirds of the average rate applied for real estate loans granted to individuals during the fourth quarter of the year preceding that of the payment credit request (i.e. 1.7% in 2023), the interest rate applied throughout the duration of the payment credit is reduced to one third of this rate (i.e. 0.5% in 2023) when the value of the individual company or the nominal value of the securities included in the share of each donee is greater than 10 % of the value of the sole proprietorship or of the share capital or when, overall, more than a third of the share capital is transferred.

Dutreil Pacts: the conditions for benefiting from the preferential regime

A distinction must be made in this regard depending on whether the donation relates to an individual business or to the shares or shares of a company.

‒ Donation from an individual business (article 787 C of the CGI)

The transfer (donation or inheritance) must relate to all or an undivided share of all the assets allocated to the operation.

In the deed of donation or declaration of succession, each of the donees, heirs or legatees must undertake to retain all of the property allocated to the operation for a period of four years.

One of these people must continue the operation for three years following the transfer.

‒ Donation of shares or shares in a company (article 787 B of the CGI)

Prior to transmission (donation or death), the securities must have been the subject of a conservation commitment made collectively by the donor or the deceased and other associates. With a minimum duration of two years, this commitment must be in progress on the date of transmission. It must relate to at least 17% of financial rights and 34% of voting rights.

At least one of the signatories of the collective commitment must exercise management functions in the company for the entire duration of the commitment.

In the deed of donation or the declaration of succession, each of the donees, heirs or legatees wishing to benefit from the preferential regime, must undertake to retain the titles for a period of four years (period which runs from the date of expiration of the collective commitment).

During the three years following the transfer, at least one of the partners having participated in the pact, or at least one of the donees, heirs or legatees, must exercise management functions in the company.