Passing on your family business to your children

Quick answer. Passing on a family business combines three levers: a gift with a 100,000 EUR allowance per parent and per child (art. 779 of the French Tax Code), the 75% Dutreil pact exemption (art. 787 B) and a 50% reduction in gift duties if the donor is under 70 (art. 790). The real difficulty remains fairness between the successor child and the others.

Tax is not the first obstacle to a successful family transfer. The first obstacle is human: only one of the children takes over the business, the others do not, and the business assets often represent most of the total estate. Passing on a company's capital equally to children who do not work there creates lasting governance conflicts.

The right sequence therefore addresses two distinct questions. First, who runs the business after you, and with what powers. Then, how each child receives a comparable value, whether in shares, in cash or in other assets. Confusing these two questions is the most frequent mistake we correct in transfer files.

To place this approach in its broader context, read the full overview of business transfer and the reasons to anticipate it several years ahead.

The gift-versus-sale question depends on two factors: do you need the sale price to fund your retirement, and can the successor child afford to pay. Giving sharply reduces tax through the Dutreil pact but provides no liquidity. Selling provides capital but triggers a taxable capital gain at the single flat tax rate of 31.4% in 2026 (12.8% income tax and 18.6% social levies).

The table below summarises the trade-offs we systematically lay out with the owner before any choice of transfer route.

To go deeper on this point, read our analysis on choosing between gift and sale.

The retirement allowance if you sell#

If you transfer your shares on the occasion of your retirement, the fixed 500,000 EUR allowance of article 150-0 D ter applies to the income tax base, and it has been extended until 31 December 2031. Be careful: this allowance does not reduce social levies, which remain due at 18.6% on the entire capital gain. Many owners overestimate the real saving by forgetting this social portion.

To ease financing by the successor child, vendor credit allows the income tax on the capital gain to be spread over time (art. 1681 F), for businesses with fewer than 50 employees whose balance sheet or turnover does not exceed 10 million EUR.

The Dutreil pact (art. 787 B for companies, art. 787 C for sole proprietorships) exempts 75% of the value of shares transferred by gift or inheritance, subject to retention and management commitments. It is the central tool of any large family transfer: on a business valued at 1,000,000 EUR, only a base of 250,000 EUR remains taxable before the other allowances.

The Finance Act for 2026 reformed the scheme for transfers made on or after 21 February 2026. Here are the updated conditions to meet.

1. Collective retention commitment: 2 years, covering at least 17% of financial rights and 34% of voting rights for an unlisted company.
2. Individual retention commitment: extended to 6 years after the transfer, setting a minimum total retention period of 8 years (2 + 6).
3. Management function: one of the signatories must exercise a management role in the company for the required period.
4. Eligible activity: only assets strictly used for the business activity benefit from the exemption.

The underestimated risk: excluded non-business assets#

The 2026 reform now excludes from the 75% base the assets not strictly used for the activity, known as luxury assets: non-business residential property, works of art, personal vehicles, jewellery held within the company. A company holding a holiday flat or a collection will see that fraction taxed outside Dutreil. This is exactly what the tax authority looks at when reviewing a Dutreil gift file. Cleaning up the balance sheet before the transfer becomes a prerequisite, sometimes through a spin-off or an asset disposal.

The full technical mechanism is set out in our complete technical guide to the Dutreil pact. This article focuses on the family strategy around it.

The maximum gain comes from stacking three schemes, in this order. The value of the shares is first reduced by 75% through the Dutreil pact. On the remaining base, the 100,000 EUR allowance per parent and per child (art. 779) applies, renewable every 15 years. Finally, the calculated duties benefit from a 50% reduction (art. 790) if the gift covers full ownership and the donor is under 70.

The age lever is decisive: the 50% reduction disappears at 70 for a full-ownership gift. Giving early also means benefiting from the renewal of the 100,000 EUR allowance every 15 years, which justifies starting a first gift well before retirement age.

Giving bare ownership and keeping the usufruct#

Many owners want to pass on without giving up control or income. The gift of bare ownership alone, while keeping the usufruct, meets this need: duties apply only to the value of the bare ownership, calculated according to the usufruct holder's age scale (art. 669). You continue to receive dividends and, depending on the articles of association, to exercise part of the power. Our reading: dismemberment is a control tool as much as a tax one, to be handled with suitable articles of association.

This is the heart of the family issue. Giving the business to a single child creates an inequality that inheritance law will correct sooner or later, often at the worst time. Three tools allow it to be handled upstream.

• Gift-sharing: it allocates the estate among all the children while freezing values on the date of the deed, which avoids revaluation on death and defuses future disputes.
• The balancing payment: the successor child receives the business and pays financial compensation to the others, who thus receive an equivalent value without entering the capital.
• Rebalancing through other assets: property, cash or life insurance allocated to the non-successor children to equalise the shares.

Gift-sharing to freeze values is often the cornerstone, because it legally secures the intended balance. The detailed conditions are in our gift-sharing guide.

In practice: funding the balancing payment without breaking the cash position#

A large balancing payment can weigh heavily on the successor child. Setting up a family holding company that buys the shares, financed by a loan and repaid from the operating company's dividends, absorbs this financing need while organising governance. It is one of the structures we study most often, alongside the family holding as a governance tool.

Beyond gift duties, a family transfer generates notarial deed fees, valuation and advisory fees, and sometimes sharing duties. The real tax cost must always be calculated before the operation, scheme by scheme, rather than estimated as a whole.

Post-transfer governance is the most costly blind spot. Who decides after the gift, how powers are split between the usufruct holder and the bare owner, how a deadlock is avoided when several children hold the capital: these questions are settled in the articles of association and, where relevant, in a shareholders' agreement. Settling them after the fact is always harder.

Recently, a family SME owner with a business valued around 1.2 million EUR wanted to pass everything to his son, already operational in the business, while protecting his two daughters who were not involved. The initial instinct had been to give everything to the son, forgetting that the daughters hold a reserved share that would resurface on death.

We reordered the strategy: a Dutreil pact on the shares transferred to the son, gift-sharing to bring the three children into a single deed with frozen values, a balancing payment borne by the son and carried by a holding company, and rebalancing for the daughters through a securities portfolio and a property. Dismemberment let the father keep the usufruct and therefore his income.

Our conviction, as a chartered accountant registered with the Ordre des experts-comptables of the Île-de-France region and a statutory auditor, is that a successful family transfer is judged ten years later, by the strength of governance and the absence of conflict, not only by the amount of duties saved on the day of the gift. Tax is a means, family balance is the goal. Our wealth advisory for company directors and our corporate tax engagement cover this in-depth work.