Passing on your family business – why now may be the right time for your business
Private matters, September 2012
Are you operating an owner managed business or are you a shareholder in a family business? Have you thought about the succession plan for your business/shares? Do you wish to pass value to the next generation but are concerned about relinquishing control?
For owners of valuable family businesses, now, in advance of Budget 2013, is an opportune time to consider passing value to the next generation in a tax efficient manner. It is possible to pass value whilst retaining control of the business using structures appropriate to the individual and business concerned.
The key taxes to be considered on the transfer of a family business are Capital Gains Tax, Capital Acquisitions Tax and Stamp Duty.
Position pre-Budget 2013:
Capital Gains Tax
Full relief from Capital Gains Tax is available where an individual over 55 but under 66 years of age, gifts a qualifying business, shares in a family company or a farm to a child, regardless of the value. Last year’s budget introduced an upper limit of €3M where an individual who is over 66 disposes of business assets to his/her children, post 31 December 2013.
Capital Acquisitions Tax
Significant relief from Capital Acquisitions Tax is available where an individual receives a gift or inheritance of business assets (to include shares in a family company). The relief, known as Business Relief, operates to reduce the taxable value of the business assets transferred by 90%. Equivalent relief, known as Agricultural Relief, is available for transfers of agricultural property.
Position post-Budget 2013:
The Commission on Taxation Report in 2009 recommended a number of changes to the taxation regime. Many of the changes which were suggested in the report have been implemented. These include:
- an increase in the rates of Capital Acquisition Tax/Capital Gains Tax. The rates have been increased from 20% to 30% to date. There may be further increases in Budget 2013; it is has been suggested that the rate may be increased to between 35% and 40%
- a significant lowering of the amount a beneficiary, in particular a child, can receive free of Capital Acquisitions Tax
- Restrictions on relief from Capital Gains Tax, as outlined above
The report has also recommended a significant change to Business Relief for Capital Acquisitions Tax which may be introduced this year. The proposed change would cap the value of business assets on which relief could be sought at €3M, and would reduce the relief to 75% of the value of the business assets (under €3M) which are transferred. This would significantly increase the Capital Acquisitions Tax payable on the transfer of a business; for example, pre-Budget 2013, if the business assets/shares being transferred were valued at €20M and assuming the conditions for Business Relief were met, applying 90% relief would give rise to a tax liability of €600,000. Using appropriate structures and depending on your circumstances, it may be possible to reduce this further.
Post-Budget 2013, applying 75% relief on the capped value of €3M would give rise to an initial tax liability of €5,330,000. This may be increased further to €7,100,000, should the rate also increase as anticipated in Budget 2013.
The Report recommends equivalent changes to Agricultural Relief.
A window of opportunity?
In light of the increasing rates of capital taxes and the likelihood of further restrictions on available reliefs, positive estate planning should not be delayed. Taking the appropriate steps today to pass your business or economic value in your business to the next generation in a controlled and planned manner, in addition to ensuring tax efficiency, will engage the next generation and enable your business to continue to thrive into the future.
For more information please contact;
Senior Manager, Tax
T: +353 1 417 2426