Ask a tax advisor on the topic of Business start-up

Handover of freelance practice

February 14, 2011 | 45,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

As part of the transfer of my freelance practice (yoga studio) to my wife, we were advised to make a contractual handover arrangement. The handover took place on August 31, 2010. The practice has not been subject to sales tax so far and was subject to the small business regulation. No employees are employed.

Since the customer base could not be transferred, and it only concerns the continuation of the practice name, as well as the takeover of the fixtures and the website, the handover price amounts to just under 10,000 euros.

The purchase price was paid in a partial payment of 1,500 euros by December 31, 2010, and should then be paid in further monthly installments of 200 euros starting on January 1, 2011.

My questions in detail:

1) To my knowledge, I have to pay taxes on the profit made from selling the business in 2010, even if it is paid in installments later. Is that correct?

2) The total profit in 2010 without the profit from the sale of the business was below the social security threshold of 4,800 euros (above which pension insurance is mandatory for self-employed teachers). Will the profit from the sale of the business now be counted towards the annual profit for social security purposes, making me subject to pension insurance in 2010? Or will the monthly installments only be counted in 2011 at the time they are received in my account?

3) I want to continue my freelance work (on a fee basis with various adult education providers), but I was told there is a waiting period when ceasing a business and continuing the activity. Is that true, and if so, which paragraph exactly and what are the consequences?

4) Couldn't the purchase price also be structured as a gift to bypass tax and social security complications?

5) Can my wife deduct the purchase price for the company or the installments as business expenses?

Dipl.BW/SB Ulrich Stiller

Dear inquirer,

Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your situation in a initial consultation as follows:

Question 1

The capital gain is generally taxable in 2010. If you have reached the age of 55 OR are permanently occupationally disabled in terms of social security law, you are entitled to a capital gains exemption of €45,000, in your case the gain would be tax-free. I refer to § 16 paragraph 4 sentence 1 Income Tax Act. If the above conditions are not met, a capital gain is taxed at a reduced rate under the five-fifths rule.

Question 2

Capital gains are not taken into account, and later installment payments are also excluded.

Question 3

According to a decision of the Federal Fiscal Court (BFH, judgment of 18. 5. 1994, I R 109/93), you can work for your wife in the future without observing a waiting period, either as an employee or self-employed on behalf of and in the name of your wife. When considering a new opening, you should observe a period of 3 years. A period of three years corresponds roughly to the useful life of an acquired practice value. It can be considered a sufficient waiting period to assume not a relocation of practice, but a new opening (BFH judgment of 10.06.1999 BFH/NV 1999,1594).

Question 4

No, a gift leads to a cessation of business with the same consequences.

Question 5

No, that is not possible. The listed costs for the fixtures can be depreciated as low-value assets IMMEDIATELY, the rental deposit cannot be taken into account at all, but represents a receivable. The intangible value is depreciated over 3-5 years by your wife as practice value.

I hope this information was helpful.

Best regards,

Ulrich Stiller
Tax advisor/Diploma in Business Administration