Should inheritance tax on family businesses be increased?

Inheritance tax is a hot topic of debate. Calls for a fairer distribution of wealth are growing louder, led by economists like Thomas Piketty. And now that the Netherlands has committed to significantly higher defense spending, the likelihood of this being financed by higher taxes is also increasing. At the same time, entrepreneurs and family businesses are concerned about maintaining the benefits that enable their businesses to survive. While inheritance tax corrects structural inequality for some, for others, particularly family businesses, it poses a risk of business closure. Especially if the founder's death is sudden, inheritance tax can impose a fatal financial burden. This debate requires more nuance than current black-and-white thinking offers.

A key instrument in this debate is the business succession scheme (BOR), a tax exemption designed to prevent family businesses from being saddled with a high tax burden after generational change. Up to €1.5 million in business assets is exempt from inheritance tax, and 75% of any excess. The scheme is intended to ensure the continuity of businesses, for example, if children continue the business.

But the BOR is under fire. Critics say the scheme is too generous, is being used inappropriately, and contributes to wealth inequality. The Netherlands Bureau for Economic Policy Analysis (CPB) concluded in 2022 that in three-quarters of business successions, there is sufficient liquidity to pay the inheritance tax without difficulty. Nevertheless, the BOR was recently expanded—not tightened. During the turbulent night of October 26-27, 2023, just before the parliamentary recess, an amendment was passed, initiated by parties including the CDA and VVD, that expanded the scheme's scope. Starting in 2025, family members with only a small shareholding in large family businesses will also be able to use the BOR.

Swinkels

A prime example is Swinkels Family Brewers, the Brabant-based family business behind Bavaria. CEO Peer Swinkels has dedicated years to making this exception legally possible. His lobbying—supported by networks like the CDA Business Club and advocacy groups like FBNed—focused on eliminating the so-called lower threshold: the minimum shareholding an heir must hold to qualify for the BOR (Dutch Tax and Customs Administration). Thanks to this amendment, distant cousins within the Swinkels family can now also benefit from significant tax advantages, even if they are not actively involved in the company. The result: millions of euros less tax on future transfers of shares within the family.

This creates discomfort. On the one hand, it's understandable that family businesses want certainty about their future—especially when that is closely linked to generations of craftsmanship, local employment, and long-term investments. But on the other, it raises questions about when wealthy families can, through political lobbying, expand a scheme originally intended for bakers, butchers, and other SMEs.

Liquidity

For smaller family businesses, a good will is essential to transfer the business in the most tax-efficient way possible. Without a will, the legal division applies: the surviving partner receives the business, and the children receive a claim. However, this claim is not subject to the BOR (Dutch Tax and Customs Administration Act), which leads to high inheritance tax. With a will, heirs, exemptions, and ownership structures can be carefully arranged, for example, by appointing a successor or incorporating legacy structures. This prevents the business from encountering liquidity problems upon the entrepreneur's death.

The current discussion should therefore not be one of "all or nothing." The BOR is useful—but deserves refinement. Clear conditions are needed to prevent abuse without jeopardizing the continued existence of serious family businesses. Consider stricter assessments of the degree of heir involvement in the business, or differentiating tax benefits based on company size and the type of acquisition.

Inheritance tax is not a neutral instrument. For some, it means redistribution, for others, stagnation. The trick is to create policies that do justice to both realities. Family businesses are the backbone of the Dutch economy, but fair tax treatment for all citizens is equally important. It is precisely this tension that presents the challenge for both policymakers and practitioners.

This article previously appeared on Baaz: https://www.baaz.nl/moet-erfbelasting-bij-familiebedrijven-omhoog