Tax in a business succession: what sellers pay and buyers can write off

In a takeover, the purchase price is negotiated for weeks. Many people only start talking about tax when the draft contract is already with the notary. That is too late. Whether assets or shares are sold, whether the price is paid at once or in instalments, whether the building goes with the business or stays with the owner: all of this shapes what the seller keeps after tax and what the takeover ultimately costs the buyer.

In this article we look at both sides. The focus is on selling to someone from outside, which is the route Nachfounder is about. Inheritance and gift tax come up briefly at the end, because a lot is moving there right now.

Key points at a glance

• If you sell your business as a sole trader or your entire stake in a partnership, you pay tax on the capital gain. From age 55 you get a tax-free allowance and a reduced tax rate for this, once in your lifetime.
• When you sell shares in a GmbH (German limited company), 60 percent of the gain is taxable. The reduced tax rate does not apply here.
• Buyers usually want to buy the individual assets, because they can then write off the purchase price. Anyone selling a GmbH usually wants to sell the shares. Put this conflict on the table early.
• A vendor loan is taxed differently from an earn-out. The earn-out can cost you the reduced tax rate.
• The most expensive trap in small and mid-sized businesses is a Betriebsaufspaltung (a split between an operating company and a property-holding owner) that nobody knew about.
• The Federal Constitutional Court heard the case on inheritance tax on business assets on 13 October 2026. Until it rules, the current law applies.

The seller: sole traders and partnerships

If you sell a sole proprietorship or your entire stake in an OHG, KG or GmbH & Co. KG (German partnership forms), you realise a capital gain under § 16 EStG, the section of the German Income Tax Act covering the sale of a business. The calculation is simple: purchase price minus selling costs minus the book value of the capital. Book value is often low because machinery, vehicles and buildings have been written down over the years. That is why the taxable gain is usually much higher than owners expect.

Trade tax is generally not charged on this gain, as long as a natural person sells the whole business or the whole stake. Income tax is. There are two forms of relief that many people do not know about or plan for incorrectly.

First, the allowance under § 16(4) EStG. If you have turned 55 at the time of the sale or are permanently unable to work, you can apply to have 45,000 euros taxed at zero. The allowance shrinks once the gain exceeds 136,000 euros and disappears entirely from 181,000 euros. You only get it once in your lifetime.

Second, the reduced tax rate under § 34(3) EStG, the section on extraordinary income, often called the “half tax rate”. Strictly speaking it is 56 percent of your average tax rate, but at least 14 percent. It applies to gains of up to 5 million euros, again from age 55 and again only once in your lifetime. In practice this means that instead of up to 45 percent, you pay at most around 25 percent on the gain, plus solidarity surcharge and church tax where applicable. If you are not yet 55, you only get the so-called one-fifth rule, which often helps little with large gains.

Timing matters. What counts is your age on the day of the sale. Selling a few months before your 55th birthday may cost you both reliefs. And both are only available if all essential business assets are transferred in a single transaction. If, for example, you keep the business property and sell only the rest, the property is moved into your private assets at market value. You then pay tax on its hidden reserves at the same time.

The seller: GmbH shares

If the owner holds her GmbH shares privately, § 17 EStG applies, which covers the sale of shares in corporations, together with the partial income method. 60 percent of the gain is taxable and 40 percent stays tax-free. In return, selling costs are also only 60 percent deductible. Effectively, that comes to just under 30 percent at most. There is no meaningful allowance. The one in § 17 EStG is 9,060 euros and is used up by gains in the mid five figures. The reduced rate from age 55 does not exist for GmbH shares at all.

If the shares are held in your own holding GmbH, things look different. Then 95 percent of the gain is tax-free and the burden is around 1.5 percent. The money, however, then sits in the holding company. If you want it privately, you pay tax again when it is distributed. And setting up a holding shortly before the sale rarely helps. If the shares were contributed within the last seven years, the gain is retroactively taxed, on a pro rata basis, as if you had sold directly.

The buyer: depreciation, interest, liability

For successors, the most important question is: can I write off the purchase price? In an asset deal, yes. You buy the individual assets, such as machinery, vehicles, customer base and brand, and record each at its share of the purchase price. Anything above the value of the individual assets is goodwill. For tax purposes you write that off over 15 years.

For movable assets there is a bonus until the end of 2027. Under the government's immediate investment programme, you can depreciate assets acquired between 1 July 2025 and 31 December 2027 on a declining-balance basis at up to 30 percent a year, at most three times the straight-line rate. This also applies to the used machinery you buy with the business. Especially in the first years after the takeover, when money is tightest, this saves a noticeable amount of tax.

That is why it pays to record the purchase price allocation in the contract. The more is allocated to short-lived assets, the faster the depreciation works. But the allocation has to match the real values, otherwise the tax office will correct it. How a purchase price is arrived at in the first place is explained in What is a small business worth?.

In a share deal, you buy shares. They cannot be written off, and the GmbH simply carries on with its old book values. If you finance the purchase privately, you can only deduct 60 percent of the interest, and only against distributions from the GmbH. That is why many successors buy through their own acquisition GmbH and then merge it with the target company, so the interest is set against current profits. This is standard practice, but should be planned with your tax adviser and bank from the start. Incidentally, the GmbH's tax loss carryforwards are usually lost if more than half of the shares change hands.

And then there is liability. In an asset deal, under § 75 AO, the section of the German Fiscal Code on the liability of a business acquirer, you are liable for business taxes such as VAT, payroll tax and trade tax that arose since the start of the last calendar year before the takeover, limited to the assets taken over. In a share deal, every legacy issue stays in the GmbH, and therefore with you. A tax review before the purchase and a tax indemnity clause, under which the seller is responsible for taxes from the period before the handover, therefore belong in every share purchase.

Asset deal or share deal: the conflict at a glance

With sole proprietorships and partnerships the conflict hardly arises, because for tax purposes assets are sold anyway. Even someone buying a stake in a KG can depreciate the premium through a supplementary balance sheet. It gets hard with a GmbH. If the GmbH sells its business, it pays around 30 percent corporate and trade tax on the gain. If the owner then takes the money out of the GmbH privately, it is taxed again. Together that can come to almost half. With a share sale it is just under 30 percent at most.

We therefore advise negotiating not over the gross price, but over what each side keeps after tax. The buyer's tax advantage from an asset deal is real money. Part of it can go to the seller as a higher purchase price to offset her extra tax. Work through both variants once with your advisers. Often there is more in it for both of you.

VAT: usually not an issue, but expensive when it is

If a whole business is sold and the buyer continues to run it, this is a transfer of a going concern under § 1(1a) UStG, the German VAT Act. Then no VAT is due. If an essential business asset is missing, for example because the building stays with the seller and is only let on a short-term basis, or if the buyer does not run the business personally, this can tip over. Then 19 percent is due on the purchase price. The buyer gets it back as input tax, but has to finance it first. Every asset deal therefore needs a clause: if the sale does turn out to be subject to VAT, the price is net plus VAT.

Vendor loan, instalments, earn-out: when the tax falls due

In almost every takeover of a small or mid-sized business, the buyer pays part of the price later. For tax purposes that matters.

Vendor loan and fixed instalments: the entire capital gain is taxed in the year of the handover, even if the money only comes in over five or seven years. If you defer 150,000 euros, you still pay the tax on it straight away. So plan the first payment to cover the tax. The interest on the loan is investment income for the seller and a business expense for the buyer. If part of the purchase price later fails to come in because the business is struggling, the capital gain is reduced retroactively and the tax assessment is amended.

If the instalments run for more than ten years and are meant to secure your retirement, or if you agree an annuity, you have a choice. Either immediate taxation with the allowance and reduced rate. Or taxation only once the money comes in and exceeds the book value, but then as ordinary income without relief. Which is better depends on your other income in retirement.

Earn-out: here part of the price depends on revenue or profit in the coming years. In 2023 the Federal Fiscal Court ruled that such payments are only taxed when they are received (BFH, judgment of 9 November 2023, IV R 9/21). That sounds good at first, but there is a catch. The reduced rate usually does not apply to the later payments. Whether the fixed purchase price keeps it is a matter of debate among experts. If you are selling at 55 or over and are counting on the reduced rate, only structure an earn-out with a tax adviser. Sometimes a larger vendor loan is the better solution. How the building blocks fit together financially is explained in Financing a business succession.

The most expensive trap: the Betriebsaufspaltung

A situation that comes up all the time in small and mid-sized businesses: the owner holds the GmbH shares and the business premises. The building belongs to her privately and is let to the GmbH. For tax purposes, this is a Betriebsaufspaltung, a business split. The building and the GmbH shares then count as business assets of a separate trading business, often without anyone in the company still having it on their radar.

If she now sells only the shares and keeps the building, the business split ends. The result: the hidden reserves in the building are taxed, meaning the difference between today's value and what is still on the books after decades of depreciation. Yet not a single euro comes in, because the building was not sold. Depending on the building, this can quickly mean a six-figure tax bill.

It can almost always be solved, but only with time to prepare. For example by selling the building as well, or by moving it beforehand into a structure in which it remains business property for tax purposes. For successors this means: in your review, ask specifically who owns the building, the land and important machinery. If the seller is surprised by the question, it is better to sort it out before signing than after.

When no full price is paid: gifts and inheritance

When a business is handed over within the family or to long-serving employees, often no full purchase price is paid. Then inheritance and gift tax comes into play. Business assets remain 85 or 100 percent tax-free if the business is continued for five or seven years respectively, the payroll is maintained and there are not too many non-operating assets in the business, such as let property or large cash holdings. Special rules apply to acquisitions above 26 million euros.

For external successors there is one point that is often overlooked. Anyone who receives a business well below its value, for example as a long-serving employee, may owe gift tax on the part that was given away. Unrelated persons only have a 20,000 euro allowance. However, the relief for business assets also applies to them, and the tax rates for qualifying business assets are the same as between close relatives. So have the price derived in a traceable way and record how you arrived at it.

Whether these rules will stay is open. The Federal Constitutional Court heard the inheritance tax case on 12 and 13 October 2026, with the second day devoted directly to the relief for business assets (1 BvR 804/22). After the hearing, observers consider it unlikely that the relief will be abolished entirely. A ruling is expected around the turn of the year or in the course of 2027, and the legislator is usually given a deadline afterwards. In January 2026 the SPD presented a proposal that would replace the relief with a 5 million euro allowance. There is no draft bill.

If you are planning a handover within the family, go through with your tax adviser now whether it makes sense to bring it forward. Nobody should make a gift in a panic. A gift made only for tax reasons often creates new problems.

Checklist for both sides

• Bring in your tax adviser before you sign a letter of intent, not just for the contract.
• Sellers: check whether you will be 55 on the day of the sale and whether you have already used the allowance and reduced rate.
• Clarify who owns the building, the land and important machinery, and whether a Betriebsaufspaltung exists.
• Calculate the asset deal and share deal net for both sides and negotiate over the result.
• Record the purchase price allocation in the contract.
• Include a VAT clause, and in a share purchase also a tax indemnity clause.
• Choose deliberately between a vendor loan and an earn-out, and set aside the money for the tax in the year of the handover.
• Talk to the bank about financing before the structure is fixed, not afterwards.

One more word from us: this article is an overview, as of October 2026. It is not a substitute for tax advice. Every succession has its own structure, and with tax in particular the expensive mistakes are in the detail.

In the Nachfounder programme, tax advisers and lawyers sit at the table from the review stage onwards, so the structure is in place before the last euro is negotiated. Thinking about your own succession? The succession check gives you an initial assessment in a few minutes.