What is fiduciary asset management (bvk)?
Fiduciary asset management was brought into our lives by the new Civil Code. According to the basic concept, a wealthy individual (asset assignor) hands over his assets to another person (asset manager) with the aim of managing and controlling them and releasing the assets and their income to the beneficiaries. Fiduciary asset management has become an extremely popular scheme because, until 2014, no complex legal scheme existed in the Hungarian legal system to ensure inheritance and family wealth planning. In addition to all of this, he was able to implement the “I bring it, but I don’t” conditions known from the tales of King Matthias: since the person ordering the property and the property manager can be the same, the person ordering the property can remove assets from his own property and risks in such a way that, at the same time, the right of disposal above he doesn’t quit.
The spread of bvk among business owners was facilitated by an additional circumstance. With the incorporation of the private limited company, the company owner was able to appreciate his property at market value without having to pay taxes. This also meant that the company owner could make the capital gains from the eventual sale of his company tax-free, which could not be achieved so easily with other schemes.
Closing of the main tax advantage
As expected, the legislator began to see the possibility of tax-free asset appreciation as a tax loophole. This is why the profession was not caught off guard when, in the tax package submitted to the Parliament in June, the legislator initiated the withdrawal of this tax advantage. According to the June law proposal, the transfer of assets must be considered a sale, so if the transferor determines the value of the share at the time of sale to the bvk as higher than the value he spent on “acquiring” the company, he is required to pay 15% of the difference (and limited social contribution tax liability) arises. Although the draft did not make the revaluation of the property to market value mandatory, it stipulated that if the property is not revalued when it is transferred to asset management, then the tax payment will take place when the property is issued to the beneficiary.
The draft law intended to provide a 30-day transition period to those who still wish to create a fiduciary trust according to the old rules: the old rules are still applicable to bvk created during this period, i.e. it is possible to have the property valued free of charge.
The final text: the concept remained, but softened in a few places
The legislative amendment adopted by the Parliament today maintained the original proposal. In other words, in the future, when transferring assets to asset management, as a general rule, you will either have to pay tax, or there will be no possibility of revaluation. However, the final text made a few exceptions to this general rule. On the one hand, in the case of private limited companies in which assets are distributed only after the death of the asset assignor, tax-free revaluation will still be possible at the time of asset assignment. However, if someone creates a private limited liability company in this way, and capital is paid out before the death of the asset assignor, the beneficiary must pay the tax in an amount increased by 20%.
The law adopted today also opens up another possibility for tax-free revaluation: if the estate administrator orders the BVK in the event of his death, on the day of his death. In such a case, you lose the opportunity to use the BVK as an asset protection tool (since your assets remain in your name until your death) and you cannot be completely flexible in terms of inheritance either (since the assets transferred to the BVK at the time of death will most certainly be burdened by the ), but the tax-free revaluation option opens.
The fact that there are still 60 days available for the establishment of the bvk, instead of 30 according to the original amendment proposal, should be evaluated as a further relaxation. Moreover, this clock starts ticking when the law is promulgated. Those who do not want to create a private limited company, but its “big brother” asset management foundation, also received an additional discount. They are not obliged to register the foundation within 60 days, they are only obliged to submit its application for registration within this period.
What is expected?
The 60-day deadline established by the legislator is a kind of “call to waltz”. Those who planned to create a private limited liability company and did not do so until now will probably use the 60-day window now. The country is already on fire for the establishment of bvk, and this will only increase.
After the deadline, there will certainly be a temporary decline in the establishment of trusts. Then, slowly, this institution also becomes commonplace as a means of wealth protection and flexible transfer of wealth between generations.
Friend Ákos
senior lawyer, tax expert,
Jalsovszky Law Firm
Cover image source: Getty Images
