Your money - 4 April 2012
Q. My wife and I started our own company about 20 years ago. It has been very successful. My wife is retiring this year as she is 55 years. She has no pension so is she entitled to draw any money out of the company when she retires?
A. It is unclear from your letter whether your wife is a director and shareholder in the company or whether she has been taking salary from the company over the years in which she has worked.
Depending on the circumstances at the time of retirement your wife should be looking at the following possibilities:
- Payment of a termination payment by the company to her in respect of her years of service. This payment may attract tax relief as follows:
- A basic exemption which is currently €10,160
together with €765 for each complete year of service in the employment in respect of which the payment is made.
plus the basic exemption may be increased by an additional €10,000 where an individual is not a member of an occupational pension scheme or otherwise gives up their right to receive a lump sum from such a scheme.
e.g. €10,160 + €765 x 20 +€10,000 = €35,460
- An amount equal to the Standard Capital Superannuation Benefit which is calculated as follows:
A x N - L
A = one year’s average salary for the last three years of service
N = number of complete years of service
L = any tax-free lump sum received or receivable under an Approved Superannuation Scheme.
e.g. Assume average salary €40,000
€40,000 x 20 - 0 (no pension plan) = €53,333
The higher amount is the one allowed by Revenue.
- If your wife is a shareholder in the company and she disposes of her shares in the family company then any gain arising may be tax-free provided the consideration received for the shares is less than €750,000. Likewise a gain on the disposal of the shares to any of your children is also tax-free irrespective of the consideration.
The relief is known as retirement relief and there are of course a considerable number of qualifying factors to obtain retirement relief.
To qualify for the relief, the individual must have owned the assets for a minimum period of 10 years ending with the disposal and, where the business is disposed of through shares in the family company, the individual must have been a working director of the relevant company for a period of not less than 10 years, during which period he or she has been a full-time working director of the relevant company for a period of not less than five years.
Please note however that Finance Act 2012 includes changes to retirement relief from capital gains tax, which would have the effect of reducing the relief limits for disposals by individuals over 65. This is to incentivise earlier transfers/sales of business assets. These reductions in the value of relief will not apply until 1 January 2014.
The new provisions in relation to a disposal to a child are as follows:
- Unrestricted relief will continue to apply to disposals of qualifying assets by individuals aged 55 and below 66, where the conditions for relief are met;
- A market value ceiling of €3,000,000, over which relief will not apply, will apply to disposals of qualifying assets by individuals aged 66 and over.
- Where the disposal is not to a child the new provisions are:
- The existing consideration ceiling of €750,000 (with marginal relief to apply over that level) will continue to apply to disposals of qualifying assets by individuals aged 55 and below 66;
- A new lower consideration ceiling of €500,000 (with marginal relief to apply over that level) will apply to disposals of qualifying assets by individuals aged 66 and over.
As you can appreciate this is an area where you would need to take careful advice and I would suggest that you contact your accountant/tax advisor before making any decisions.
If you have any queries on money or taxation matters which you would like answered, please send them to "Your Money", c/o Examiner Publications (Cork) Ltd., City Quarters, Lapps Quay, Cork