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Presentation to FTMTAPreparing to hand over business – tax effects

everything

Donal Bradley, Senior Tax ManagerFriday 20 November 2015

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MOVING METAL!

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1. Tax in 2015 – new landscape

2. The basic taxes on transfer

3. CGT – Issues and reliefs

4. CAT – Issue and reliefs

Topics

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• Capital taxes have increased significantly in recent years in particular gift / inheritance taxes (CAT)

• Huge changes – However there are reliefs for business owners passing on business

1 - Tax in 2015 – new landscape

Details CAT on 1 April 2009

CAT on 20 Nov 2015

Value of gift 2,000k 2,000k

Tax free threshold (3 children) (1,627k) (840k)

Taxable gift 373k 1,160k

Tax @ 22% / 33% 82k 383k

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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

2 - Taxes on transfer

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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

Taxes on transfer (continued)

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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Miscellaneous

• Stamp duty – 2% (Consanguinity relief - 1% pre31 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?

Taxes on transfer (continued)

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CGT Retirement Relief – no need to leave business

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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

3 – CGT issues and reliefs

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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 – example of Retirement Relief (“RR”)

CGT on transfer Full RR No RR

Value of company 1,200,000 1,200,000Value of premises 300,000 300,000Base cost of premises -250,000 -250,000Taxable gain 1,250,000 1,250,000Retirement Relief -1,250,000 0

CGT @ 33% Nil 412,500

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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

CGT issues and reliefs (continued)

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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

 

 

4 – CAT issues and reliefs

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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.

 

 

CAT issues and reliefs

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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)

CAT – example of Business Asset Relief (“BAR”)

Gift to child Full BAR No BARValue of property 1,200,000 1,200,000Value of business 300,000 300,000Total gift 1,500,000 1,500,000Less BAR - 90% -1,350,000 0Taxable gift 150,000 1,500,000Less Tax free Threshold -280,000 -280,000Taxable amount 0 1,220,000CAT @ 33% Nil 402,600

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• 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 Report2009 regarding thresholds on CAT Business Asset Relief not yet implemented – possible in future?

• General election – spring 2016

Do I need to act now?

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QUESTIONS

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