Budget 2024: Retirement relief

Budget 2024: Retirement relief

Michael O'Scathaill, Director, Tax
Budget 2024: Retirement relief

There were two key changes announced that are relevant to the transfer of a business within the family. For illustration purposes, we will refer to shares in a company, but retirement relief can also apply to other business models such as sole traderships.

Currently, where a business owner transfers shares to their children and retirement relief applies, for the purposes of the relief there is no upper limit on the value of the shares until the transferor (the parent) is aged 66, after which only the first €3m is exempt. CGT is then payable on the balance above the €3m and you often find that the parents are quite irked to learn that they are stuck with a tax bill on a transaction without having received any funds from the business.

On Budget Day, the Minister announced that the age limit at which the €3m limit applies is being increased to 70. However, he has also announced that for those aged under 70, a lifetime limit of €10m will apply. These changes will apply from 1 January 2025.

What this means in practice is that for anyone who is aged 65 or under with a business valued at more than €10m, who is considering transferring it to their children, there is now something of an incentive to complete the transfer before the end of 2024. For those who are aged between 66 and 69 who thought they were subject to a €3m limit, they have had something of a reprieve with an increased limit of €10m applying; they may find it beneficial to defer any transfers until the new limit kicks in in 2025, but they will also have to be cognisant of Father Time and getting it done before turning 70! In essence, these changes may impact any business owner aged from, say, their mid-50s up to late 60s.

In addition to considering the CGT implications, the transfer of a business within the family has wider implications, both tax and non-tax. On the tax side, the children could have stamp duty and CAT (gift tax) costs, albeit that Business Assets Relief may mitigate these somewhat. Leaving tax aside then, the decision to transfer a business to family members is quite emotive with a range of issues to consider. Are the children sufficiently mature and ready to take over? Are they interested in doing so? Do they have the capability and skillset to manage and run a business? What if some children are suitable but others aren’t? If you transfer it to some of your children but not all, how does that impact the family dynamic and how do you look after the children that won’t benefit?

We generally find that there is a long lead-in period to the transfer of a business, with a lot of thinking and weighing up as well as negotiating involved. In a sense, the government have given us 15 months’ notice of these changes and now may be the time for those who were considering transferring their business to start planning in earnest with a view to establishing if it is the right thing to do and when is the right time to do it.

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Michael O'Scathaill, Director, Tax - Crowe Ireland
Michael O’Scathaill
Director, Tax