Donation of a limited partner's share under conditional usufruct

Despite a conditional usufruct, the donation of a limited partner's share may qualify for a tax exemption for business assets.

The donation of business assets under conditional usufruct for the previous business owner may be an elegant legal solution for business succession. From a tax point of view, however, careful structuring is necessary in order to avoid unnecessary tax burdens. For the tax exemption of business assets, the successor must take on entrepreneurial initiative and risk despite the restrictions imposed by the conditional usufruct. The German Federal Fiscal Court has now ruled that the owner of a limited partner's share subject to a usufruct can also be a co-entrepreneur and thus meet the requirements for tax exemption. Although the case concerned the legal situation before the 2008 inheritance tax reform, it also provides new argumentation aids for current cases when dealing with the tax office in similar cases.