Retiring from a business and planning a smooth succession takes a little time. It is important to ensure the necessary steps have been taken and the right building blocks are in place for when the time is right.
The benefits of early consideration of the issues and long-term planning can be significant as it:
Ultimately there are several tax considerations which will inform your approach to succession planning. Irish tax policy is generally supportive of businesses transferring between generations, and there are tax reliefs available, outlined below, that are designed to minimise tax payable on such transfers.
Transferring assets can give rise to:
In the case of business transfers, areas such as pension planning and tax-efficient extraction of funds by a retiring shareholder can also be important.
CGT and CAT rates have risen over the past decade from 20% to 33% while in that same time the primary CAT exemption threshold (covering transfers from a parent to a child) has fallen from €542,000 to €335,000.
There are a number of potentially valuable reliefs in this area:
However, availing of these reliefs is not straightforward as they can be subject to stringent conditions, such as minimum periods of ownership or active involvement in the business. If not carefully planned for in advance, by the time the assets are being transferred it may not be possible to meet these conditions.
Maximising the use of these reliefs may impact your other objectives with your succession plan, so it is important to consider the bigger picture. Tax is an important consideration, but it should not be the driving force. There are a range of non-tax issues which need to be considered and you will need to balance all of your objectives and decide on the approach that best meets your needs.
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