Overburdened succession

This is the essence of PwC’s study ‘Overburdened succession: The cumulative Impact of tax measures on transfers and their effect on investment and continuity in Dutch family-owned real estate businesses.’

What sets family real estate businesses apart

Edwin Sarkinovic, PwC’s director of tax, highlights: The implications extend beyond increased taxes. They threaten business continuity, investment potential in the Dutch real estate market, and key societal challenges like housing, sustainability and area development.’ 

The research focuses on family real estate businesses defined by their long-term approach: actively managing, transforming and developing rented property. 'This isn't about passive investors. It's about businesses that truly operate in real estate', says Philip Vossenberg, tax partner and family capital leader at PwC. 'While each company has its own focus, they share something fundamental: family ownership and control, with decisions made from a long-term perspective that often span multiple generations.'

These family real estate businesses matter more than the size of their portfolios. Their real significance lies in their market role. Long-term orientation, regional roots, and the combination of management, development and investment under one roof make them a stabilising force in a real estate market defined by structural scarcity.

Barbara Baarsma, chief economist at PwC, clarifies this role: 'Right now, as private landlords increasingly withdraw, family real estate businesses play a vital role in providing continuity. They invest heavily in the mid-rental segment. They develop homes above shops in city centres. These are complex projects with long horizons, where returns often only emerge after years. Other investors simply aren't interested.'

How the fiscal landscape shifted in 2024

Transferring these businesses to the next generation has become significantly more heavily taxed in recent years. Since 2024, rented properties are automatically classified as investment assets for tax purposes through legal fiction. Sarkinovic outlines what this means: ‘Family real estate businesses now fall outside the business succession facilities in Box 2 and gift and inheritance tax. They also lose access to deferred payment options on transfer. In many cases, transfer tax is due on the transfer of shares in a real estate company, which increases the tax burden even further.'

These policy changes have real impact, Vossenberg adds: 'The distinction between real estate investment and passive management on the one hand, and active management on the other, no longer exists. For tax purposes, it's all treated as one category: investment.'

This fails to recognise what active management involves, according to Baarsma: 'Active management, transformation and development require organisational strength, deployment of labour and capital, entrepreneurial risk and expertise. When you solve vacancy issues, improve the living environment, make buildings sustainable, or add new homes, you're not acting as an investor. You're acting as an entrepreneur.'

Investment capacity and continuity under pressure

The consequences are significant, states Baarsma: 'With rollover and deferral options removed, taxes on transfer often must be paid within short timeframes. Yet the assets of family real estate businesses are largely tied up in illiquid real estate. This creates acute liquidity pressure and continuity problems. When liquidity isn't available through reserves or additional financing, selling real estate is often the only option left. Forced sales under time pressure usually yield considerably less than a carefully timed, market-driven sale. What's more, sales or refinancing can breach existing bank covenants, resulting in extra costs and uncertainty.’

The impact extends beyond the transfer itself. Investment capacity comes under pressure too. To maintain room for future tax claims, investments are postponed or scaled back. This affects a broad range of activities: sustainability and maintenance, inner-city redevelopment, and the construction of affordable rental housing. The combination of high, concentrated tax pressure and limited deferred payment options not only increases continuity risks. It structurally limits investment capacity within the Dutch real estate market.

These effects aren't visible in public debate. That the marginal tax pressure on transferring a family real estate business can be this high isn't widely known. 'Not among policymakers and politicians, and not always among the businesses themselves either. Precisely because it involves the cumulation of different measures, the impact is diffusing. It creeps unnoticed into decisions about investments, portfolio choices and strategy',  says Sarkinovic.

Policy options to reduce the negative impact

At the same time, the report shows there are policy options to mitigate these negative effects without abandoning the legislation's objective: avoiding unintended facilities for passive investment. One option is to introduce a generic deferred payment scheme for investment assets, so you can pay tax in instalments and prevent forced sales. Another is extending the so-called death dividend to gift situations, so you can use dividend for tax payment without double taxation in Box 2.

We could also consider opening the business succession facilities (the BOR) under conditions for entrepreneurial family real estate businesses, with a longer sales prohibition of five or seven years to prevent abuse. Relaxing transfer tax on restructurings can contribute to better plannable succession. Finally, a streamlined BOR variant or an adapted investment fiction (based on objective criteria and possibly linked to a reinvestment obligation in the residential or commercial rental sector) can help distinguish passive investment from active entrepreneurship.

Vossenberg explains that PwC wants to explicitly put these considerations on the table with this report: 'Not to argue about abolishing taxation, but to make clear what the effects of current choices are on continuity, investment capacity and social value.' Baarsma adds: 'The aim is to contribute to better informed policy choices, whilst giving family real estate businesses the tools to prepare in good time for the tax and financial consequences of business succession.'

The report aims to start a constructive conversation about policy that does justice to both the legislator's objectives and the role that entrepreneurial family real estate businesses play in the Dutch economy and real estate market.