Shares left undivided, and the conflict they make permanent

A man in his seventies, two or three children of whom only one actually works in the business, an estate that holds the trading company and the property together, and in front of the solicitor the decision that looks like the most reasonable in the world: not to choose. The shares stay undivided, held in common between the heirs, because that way nobody feels passed over and nobody has cause to quarrel, and so the founder leaves the meeting convinced he has protected the estate and the peace of the family in a single move. He has done the opposite, and the only people who will find out are the ones left behind. The scene is far more common than you would think, because it is the comfortable solution; and British families have had eighteen months of fresh reason to dwell on it, ever since the capping of business and agricultural property relief turned the passing-on of a family firm from a tax afterthought into the thing every dinner table argues about. The trouble is that almost all of that argument has been about the tax, and the tax is the least of it.

Leaving an inheritance undivided is almost always told as a form of fairness, the way to treat the children alike without having to admit that one of them is better suited than the others to hold the wheel. In governance terms it is something different and a good deal less innocent, because undivided does not mean shared: it means that every decision of any weight requires the consent of all, and that each co-owner therefore holds a power of veto over the whole. Control has not been distributed among the heirs; the veto has, and that is a distinction nobody sees at the time, since for as long as there is nothing to decide the arrangement looks like peace. It shows itself the first moment something genuinely has to be decided, a sale, a capital increase, a change of director, and it emerges that the deadlock is not an accident but the very structure that was built.

This is the misunderstanding at the root of it. The parent believes he has deferred the conflict, left it in suspense for the children to settle once they are older and steadier than he could ever be, when in fact he has not deferred it at all but institutionalised it, turning a potential disagreement that might never even have surfaced into a permanent rule of operation under which a single dissent is enough to stop everything. The peace he thought he was buying is a frozen war, and the freeze lasts exactly as long as the inertia lasts; the moment the estate demands a choice the ice breaks, and the family finds itself precisely where it did not want to be, with the difference that the founder is no longer there to arbitrate.

In May the Italian Revenue put a price on all this, without meaning to. In a ruling of the twenty-sixth it looked at the case of a thirty-five per cent holding in a property company that had passed on death to a widow and two daughters and remained undivided between them. The heirs asked to add that holding to the shares each already owned in her own name, so as to reach control and keep the exemption from inheritance tax that the law reserves for those who, in inheriting, acquire or consolidate control of the family business. The Revenue said no, confirming a line the Court of Cassation had already drawn in 2021: ownership held in common is not counted together with shares owned individually, because it is the transfer itself that must put someone in a position to command, and a co-ownership in which nobody commands puts nobody in that position.

From the outside this looks like a technical matter, the sort that interests the accountant and no one else; read more clinically it is an X-ray. The Revenue did not create the fragility, it merely made it visible, and it did so by applying a plain logic to the letter: the relief exists to keep a business in the hands of whoever runs it, and where nobody runs it there is no continuity to protect, only a frozen block of capital from which it is hard to see why the state should forgo its revenue. The same undividedness meant to keep the family together becomes the reason the exemption falls away, and the choice that was avoided arrives in the shape of a demand from the Revenue. It is not the worst thing that can happen to that estate, only the first to arrive with a number attached, and in that it is valuable, because it makes sayable what until then had been a discomfort without a shape.

It is worth asking why families often clear-eyed and ruthless in business should stumble so predictably on the one decision that matters. The answer, to my mind, is not negligence, but that to choose an heir is to say aloud something no parent wants to say, namely that among one’s children there is one more capable and one less, one cut out for the role and one not. Equal shares are a consoling fiction that spares everyone that sentence, and the price of the fiction is loaded in full onto the next generation, which finds itself owning in equal parts a machine nobody has the right to drive. As an Italian, raised in a culture where the family firm is almost a member of the family in its own right, it took me years to understand that the apparent fairness between the children and the health of the business almost always pull in opposite directions, and that confusing the two is the most courteous way of damaging both.

There is then a second level the tax figures do not touch but which is their real undertow, namely that undivided ownership blocks more than the extraordinary decisions; it makes everyday power ambiguous too, because formally nobody is the owner of reference and in practice somebody becomes it anyway, usually the child who sits in the business or the one who speaks loudest. A de facto sovereignty without title takes shape, which the other heirs tolerate for as long as it suits them and do not hesitate to challenge the moment it stops suiting them, and at that point the veto that had lain dormant comes suddenly to life. The banks sense it before the parties themselves do, because a block of shares with no clear dominus is a block the relationship handles warily, since one cannot be sure who one is really speaking to, and that wariness has concrete consequences for credit, for any extraordinary transaction, for the very possibility of putting that holding on the market the day liquidity is needed.

Anyone who approaches succession as a problem of tax optimisation almost always arrives late and through the wrong door, because he treats as technical a question that is one of systemic architecture. The question to start from is not how do we transfer the shares while paying less, but who decides when opinions diverge, and by what rule. A family that answered that question in good time, settling who commands, how one exits, what happens in the event of deadlock, can afford even tax-imperfect choices, because it holds the thing that counts. A family that has not answered it will find itself exposed not when the founder departs, but at the first decision the estate demands and that nobody has the power to take; and the Italian ruling of May, like Britain’s own reckoning with a relief it long took for granted, is only the early notice that the bill, sooner or later, is paid.