Advance withdrawal of real estate held as business assets - private withdrawal!

If a property owned by a private individual qualifies as a business asset for tax purposes (e.g. due to business use or a trading activity), the transfer free of charge must be differentiated with regard to the tax consequences.

In the case of a gratuitous transfer, the focus is on a gift, advance withdrawal or inheritance. However, free transfers can also occur as part of a property settlement.

According to the practice of most cantons, the inheritance alone does not lead to any tax realization in the business assets due to the lack of an inflow of consideration - this is also due to the universal succession - and therefore does not lead to taxation of the hidden reserves. The inherited property continues to constitute business assets for the acquiring party. However, such a transfer can trigger gift and inheritance tax consequences and the deferred taxes on profits due to the qualification of business assets are still retained by the heirs.

However, the situation is different in the case of a gift or advance withdrawal of inheritance. According to common practice in most cantons - including the canton of Zurich for some years now - the gifting of business assets constitutes a tax-triggering private withdrawal, as gifts can only be made from private assets. Accordingly, the donor must account for the hidden reserves on the property for income tax (and social security) purposes. For property gains tax purposes, this is still a deferral, which is why no property gains tax is due.

The same applies to transfers as part of a matrimonial property settlement. Due to the economic unity, the property does not lose its character as a business asset if it is transferred from one spouse to the other during the marriage. However, the situation is different in the case of a property settlement in the context of a divorce. In these cases, the tax authorities assume that the economic unit is dissolved. Accordingly, when the property is allocated to the other spouse, this leads to a private withdrawal, in which the hidden reserves are taken into account.