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Accelerated inheritance – Avoiding assets being classified as non-operating

When business assets are gifted or inherited, the non-operating assets will be of particular importance because it is not be possible to make an application for preferential tax treatment in this respect. For this reason, it is understandable that efforts are made to avoid assets being classified as non-operating.

Non-operating assets are understood to be assets that are not required in the normal operations of the business itself. In the context of accelerated inheritance, under certain circumstances, it could be possible to avoid non-operating assets being created when property is made available for use to a third party. The prerequisites for this, where appropriate, are the existence of a lease agreement and the appointment of the third party as the heir. 

Recently, the Munich tax court, in its ruling of 20.4.2022 (case reference: 4 K 361/20) had had to reach a decision on this type of accelerated inheritance. In the case in question, the claimant was the nephew of the deceased husband of Mrs X; the nephew had leased a workshop form the latter since 28.10.2007. Mrs X had transferred the workshop and her other assets by way of accelerated inheritance, via a notarial agreement from 9.8.2017, to the claimant. He was however not appointed as an heir. In an assessment notice dated 16.5.2019, the local tax office determined the value of the real estate and the sum total of non-operating assets. The claimant unsuccessfully appealed against the assessment of the non-operating assets.

The Munich-based judges considered the claim to be unfounded. According to the law, properties that have been made available for use to third parties are generally included under non-operating assets. Making property available for use to a third party would not give rise to non-operating assets only if this were to happen within the scope of the leasing of an entire business that would result in income from commercial operations for the lessor, and if the lessor of the business, in conjunction with leasing for an indefinite term, were to appoint the lessee as the heir. In the view of the court, this exception also covers gifts made in the context of accelerated inheritance. 

Outcome: In the case in question, the lessee was however neither appointed as an heir to X within the scope of testamentary inheritance, nor was it possible to draw on any legal status as an heir. Moreover, according to the tax court, the fact that Mrs X had transferred all the assets to the claimant by way of accelerated inheritance and that there were no other assets did not change the situation.

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