“The heirs of Vilho Väisälä, who founded Vaisala in the 1930s, are facing a generational handover. The fourth generation of the owning family, represented by Voipio, already owns just under eight percent of the company, but the third generation still owns just over 21 percent.
At the current share price, Vaisala’s market value is approximately 1.4 billion euros, meaning that computationally, a transfer of holdings worth about 300 million euros from one generation to the next is ahead.
Voipio has calculated that the effective tax rate for the generational handover for their family will be around 25 percent, roughly 75 million euros.”
According to the YLE article, there are five heirs in the 4th generation of the Väisälä family. With an equal split, each heir would inherit 4.2% of Vaisala’s shares. In that case, one does not get the inheritance tax relief based on a generational handover. The portion received through inheritance or a will must be at least 10% of the shares entitling ownership of the company for the relief to be possible.
What is stupid about inheritance tax is that it:
a) drives a smart heir out of Finland, because a 15 million euro inheritance tax can be avoided by moving to Sweden, or
b) limits the company’s growth, because the heir has had to accumulate 15 MEUR in wealth through dividends throughout their life (likely won’t have time) to be able to pay the inheritance taxes, or
c) drives the heir away from company ownership, because the heir has to sell 19 MEUR worth of Vaisala shares (using the 40% deemed acquisition cost (hankintamenolettama)), so that after capital gains tax, 15 MEUR remains to pay the inheritance tax.
Abolishing inheritance tax for everyone would be an easy, fast, and certain way to create economic growth.
And if we set Vaisala aside and consider the matter from Finland’s perspective.
According to Ville Vaipio:
“Family-owned businesses employ nearly half of the private sector workforce, and even more locally. When the growth of this sector is restricted through taxation, it is reflected in the national economy and employment.”
I didn’t do a fact check, and ChatGPT gave a slightly broader range of 32–69%. In any case, it could be a good research topic to see what proportion of the companies in this group slow down their growth because of inheritance tax and how many are planning to move for tax avoidance.
First of all, I’d like to remind you that, according to that YLE article, the testators were uncles and aunts, so not even the person’s own parents. It’s certainly unpleasant to pay 25% on an inheritance of tens of millions received from people who aren’t even part of one’s immediate family. Fortunately, there is a 10-year payment period for inheritance tax.
a) We cannot know if the heirs of the shares are any smarter than average/could be. These five might be, but perhaps not all. What if heirs in general are on average a worse option for the company?
b) At least in this case, as I understand it, this isn’t happening; instead, growth continues to be sought at the expense of dividends.
c) This might well happen. Same question: how can we be sure that it would be a bad thing in this specific case or generally in a large part of companies?
Regarding your last sentence: Has it been studied that it slows down economic growth? Whose economic growth—the company’s? The state’s? The heirs’? Regarding generational handovers of companies, I would personally hope for a bit more relief. For inheritance taxes not related to company ownership, however, I would not. In other words, the entire inheritance tax system shouldn’t be “blown up” because of this kind of issue.
In Finland, there are practically three sources of income. Earned and capital income—in one, you get money for your hard work, and in the other because you bear risk.
Then there is inheritance income—you don’t need to be hard-working or bear risk, yet you’re expected to get the money for free. (17% tax currently)
That Vaisala story is total nonsense and the framing in the article is badly flawed. If you pay 70 million euros in taxes, you get nearly 500 million euros worth of liquid shares without risk or effort in Vaisala’s case.
It’s certainly true that it can be difficult to liquidate quickly, but a bank would surely be happy to lend money for tax payments as well, if one doesn’t want to liquidate the inherited or gifted assets.
In unlisted, fully family-owned companies, a generation shift can be achieved with even lighter tax consequences.
Also, that Vaisala comment about investing in growth is a silly claim. They invest in growth because they believe it will bring more value in the future, and as the company’s value increases through growth, the share price rises. Naturally, the tax increases as well.
I do agree, of course, that moving to Sweden is problematic. Regarding the loss of control, it’s also good to remember that Vaisala’s family owners hold K-shares, which entitle them to 20 times the voting rights per share.
If we want more earnings and economic growth, then taxes on earnings should be kept low. Lower than in peer countries.
Additionally, regarding investment income, the total taxes (the combined effect of corporate tax + capital gains tax + property tax) should be at the same level regardless of the asset class and owner. A good target level is 30%. The tax base must be broad, meaning everything is taxed.
Inheritance tax can be abolished and replaced with capital gains tax. Currently, in many cases, inheritance tax is lower than capital gains tax. In this context, the capital gains tax exemption for one’s own home can be removed OR, alternatively, the capital gains tax on housing can be abolished and replaced with a corresponding level of property tax.
