Is the deduction of the sale allowance under § 16 Abs. 4 S. 1 EStG also possible if the business is initially leased on a fixed-term basis due to the taxpayer's health impairment and only sold after the end of the lease term?
Fundamentals: Allowance for the Sale of a Business under § 16 EStG
If the taxpayer has reached the age of 55 or is permanently incapable of working within the meaning of social security law, the capital gain is only taken into account insofar as it exceeds EUR 45,000. The allowance is granted to the taxpayer only once (in a lifetime). The allowance is reduced by the amount by which the capital gain exceeds EUR 136,000 pursuant to § 16 Abs. 4 EStG.
Practical Example: Lease of the Business for Health Reasons
A is the owner of a hair salon. In 2017, A is diagnosed with a chronic illness that severely restricts his professional activity. For this reason, A decides to take a break from his business and leases it to his senior employee B for the period from 1 January 2018 until 31 December 2023. After the lease period has expired, A's state of health has not improved, so A decides to sell the business in full to employee B as of 31 December 2023. The capital gain amounts to EUR 125,000, and at the time of sale A was 53 years old.
The question is whether A is nevertheless entitled to the allowance under § 16 Abs. 4 EStG, even though he did not pursue his professional activity in the preceding years and his business was continued by employee B.
BFH Ruling on the Allowance upon the Sale of Agricultural Businesses
According to the case law of the BFH, the allowance under § 16 EStG is also available to a taxpayer if the business was initially leased and only sold after expiry of the lease agreement. In the view of the BFH, the decisive factor is that the taxpayer leased the business due to health impairments and sold the business only after gaining certainty as to whether he remains incapable of working (BFH, judgment of 13 March 1986, IV R 176/84, BStBl 1986 II p. 601). Although the ruling concerned the sale of an agricultural business, it applies to all profit-based income categories. Accordingly, it also applies to the practical example of taxpayer A. The interim lease does not change A's state of health. If A were to recover during the period between the start and end of the lease to such an extent that occupational incapacity no longer existed, the deduction of the allowance under § 16 EStG would also no longer apply. A deduction of the allowance based on having reached the age of 55 is, according to the practical example, in principle to be excluded (A is 53 years old). The decisive factor for granting the allowance in the present practical example would therefore be occupational incapacity within the meaning of social security law. This must exist at the time of the performance transaction (sale of the business). A deduction of the allowance from the capital gain is therefore legally permissible in the practical example.
Frequently asked questions
Frequently asked questions
When is a taxpayer entitled to the disposal allowance under § 16 Abs. 4 EStG?
The EUR 45,000 allowance is granted if the taxpayer has reached the age of 55 or is permanently incapacitated for work within the meaning of social insurance law. It is granted only once in a lifetime and is reduced by the amount by which the capital gain exceeds EUR 136,000.
Is the capital gains allowance also available if the business was previously leased?
Yes, according to BFH case law (ruling of 13 March 1986, IV R 176/84), the allowance is available to the taxpayer even if the business was first leased and only sold after expiry of the lease agreement. The prerequisite is that the lease was entered into for health reasons and that the sale takes place after the continued occupational disability has been established with certainty.
At what point must occupational disability exist in order to qualify for the allowance under § 16 EStG?
Occupational disability within the meaning of social insurance law must exist at the time of the disposal transaction, i.e. the sale of the business. If recovery occurs in the meantime and occupational disability no longer exists, the entitlement to the allowance lapses, unless the 55th year of age has been completed.
Does the BFH ruling on leasing prior to sale apply only to farmers?
No. Although the BFH ruling of 13 March 1986 (IV R 176/84) concerned an agricultural business, the principles apply to all profit-based income categories. The case law therefore also extends to commercial enterprises and professional practices.
How does the amount of the capital gain affect the tax allowance?
The allowance generally amounts to EUR 45,000, but is reduced by the amount by which the capital gain exceeds EUR 136,000. With a capital gain of EUR 125,000, the allowance is therefore available in full, provided the personal requirements are met.