Presentation to FTMTA
Preparing to hand over business – tax effects
everything
Donal Bradley, Senior Tax Manager
Friday 20 November 2015
0
MOVING METAL!
1
Topics
1. Tax in 2015 – new landscape
2. The basic taxes on transfer
3. CGT – Issues and reliefs
4. CAT – Issue and reliefs
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1 - Tax in 2015 – new landscape
• Capital taxes have increased significantly in recent years in particular gift / inheritance
taxes (CAT)
Details
Value of gift
Tax free threshold (3 children)
Taxable gift
Tax @ 22% / 33%
•
CAT on 1 April
2009
CAT on 20
Nov 2015
2,000k
2,000k
(1,627k)
(840k)
373k
1,160k
82k
383k
Huge changes – However there are reliefs for business owners passing on business
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2 - Taxes on transfer
Capital gains tax (“CGT”) – payable by current owner
• Business / Company and Premises – Chargeable assets only
• Market value less base cost (connected parties)
• Tax rate 33%
• Reliefs and losses
• NOTE! Debt not taken into account
• NEW - Debt written off by bank – reduce base cost
(for disposals on or after 1 January 2014). Issue if
previous equity release
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Taxes on transfer (continued)
Capital Acquisitions Tax (“CAT”) – payable by successor
• Assets passing at less than market value
• Dependent on relationship between disponer and successor (tax free threshold)
• Tax rate 33% on excess over tax free threshold
Group Relationship to Disponer
Tax free Threshold
A
Son/Daughter (since 14 Oct
2015)
€280,000
B
Parent/Brother/Sister/
Niece/Nephew/Grandchild
€30,150
C
Other
€15,075
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Taxes on transfer (continued)
Miscellaneous
• Stamp duty – 2%
(Consanguinity relief - 1% pre
31 December 2014 on non
residential property.
Farmland until end 2017.
• VAT – complex, certain
reliefs on transfer of business.
• Asset value low
• Future tax law changes?
• Glass half full now?
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CGT Retirement Relief – no need to leave business
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3 – CGT issues and reliefs
1 - Retirement relief
• 55+, owned business for 10 years, working full time. Chargeable business assets
only – any investment assets?
• No need to retire! Six year claw-back period if to child / “favourite nephew”
• Premises also if at same time. Important if land held personally.
• Market value (not price paid) – no account of debt!
• Limits on allowable relief if +66
• NO NEED TO ACTUALLY RETIRE
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CGT – example of Retirement Relief (“RR”)
Facts: Long term owner, 60, transfers company to child worth €1,200k, no investment
assets. Transfers premises (worth €300k) to same child at the same time. Premises
acquired for €250k (after indexation)
CGT on transfer
Value of company
Value of premises
Base cost of premises
Taxable gain
Retirement Relief
CGT @ 33%
Full RR
No RR
1,200,000
300,000
-250,000
1,250,000
1,200,000
300,000
-250,000
1,250,000
-1,250,000
0
Nil
412,500
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CGT issues and reliefs (continued)
2 – Miscellaneous
• Capital gains tax incentive – property acquired pre 31 December 2014 and held for
7 years – pay at least 75% of value. Group restructure?
• Entrepreneur Relief - NEW
• Spouse exemption
• Annual exemption
• Timing of disposal – NB losses
• Debt write-down
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4 – CAT issues and reliefs
1 – Business Assets Relief
• Reduces value of taxable gift by 90%
(No limit on value passing – future changes?)
• Relevant business property – can be sole trade or an
unquoted trading company. If company, must satisfy certain
shareholding requirements (family company)
• Includes premises held personally by disponer, if used by company controlled by
disponer and transferred at same time (NB is timing if multiple transfers)
• Investment assets excluded from value – Vital to restructure now to ensure maximum
relief available on transfer
• Minimum ownership period in relation to person making the gift – Inheritance (2 years)
or gift (5 years). Claw-back period of six years
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CAT issues and reliefs
2 – CGT / CAT offset
•
Any capital gains tax arising on a disposal can be offset against a gift tax liability arising
on the same event. Two year holding period to avoid claw-back
3 – Favourite Niece / Nephew
•
In certain circumstances if a niece / nephew has been working full-time in business for
five years - €280,000 tax free threshold regarding business assets.
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CAT – example of Business Asset Relief (“BAR”)
Facts: Long term owner, 60, transfers company to child worth €1,200k, no investment
assets. Transfers premises (worth €300k) to same child at the same time. Premises
acquired for €250k (after indexation)
Gift to child
Value of property
Value of business
Total gift
Less BAR - 90%
Taxable gift
Less Tax free Threshold
Taxable amount
CAT @ 33%
Full BAR
1,200,000
300,000
1,500,000
-1,350,000
150,000
-280,000
0
Nil
No BAR
1,200,000
300,000
1,500,000
0
1,500,000
-280,000
1,220,000
402,600
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Do I need to act now?
• Do I qualify for reliefs? NB Re-structure required to ensure no dilution of reliefs by
investment assets. Get advice!
• Current rules – Commission on Taxation Report
2009 regarding thresholds on CAT Business Asset
Relief not yet implemented – possible in future?
• General election – spring 2016
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QUESTIONS
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