(2023)
What is included in capital gains?
Income from business operations also includes the profit from the sale of an entire business, a part of a business (branch, subsidiary), or a share in a partnership. A sale is also considered to be the closure of a business. Shares in a company that are created when a business, part of a business, or share in a partnership is contributed to a company as an asset in exchange for shares in the company at below market value are also included (§ 21 UmwStG).
If you sell or close your business or share in a partnership, you can take advantage of two important tax benefits:
- Tax allowance for sale: The profit from the sale is tax-free up to 45,000 Euro. However, this amount is reduced if the profit from the sale is more than 136,000 Euro, by the amount exceeding this. Therefore, the tax allowance for sale is no longer available from a profit of 181,000 Euro (§ 16 Abs. 4 EStG).
- Reduced tax rate: The remaining profit after deduction of the allowance is eligible for the one-fifth rule. Upon request, it can also be taxed at a reduced rate, namely 56% of the average tax rate and at least 14% (§ 34 Abs. 3 EStG).
The tax allowance for sale and the reduced tax rate are only granted under certain conditions:
- You must be at least 55 years old or permanently incapacitated for work in the sense of social security law.
- You can only claim the benefits once in your lifetime: the tax allowance for sale from 1996, the reduced tax rate from 2001.
- You must apply for the benefits.
If the business is sold before the age of 55, without being permanently incapacitated for work, only the one-fifth rule applies. However, this rule does not result in any tax savings if current income is already taxed at the top rate.
When selling a share in a partnership, you are also entitled to the full tax allowance for sale, not just a proportionate amount. However, if you sell only part of your share in a partnership, the profit from the sale is considered current income, and neither the tax allowance for sale nor the reduced tax rate or the one-fifth rule apply (§ 18 Abs. 3 i.V.m. § 16 Abs. 1 Satz 2 EStG).
To prove permanent incapacity for work, a notice from the pension insurance provider or a medical certificate is usually sufficient. This can also be provided by a private insurance company if their conditions meet a certain threshold for incapacity for work. However, it has been established that there are other ways to prove permanent incapacity for work (BFH ruling of 14.12.2022, X R 10/21).
