Succession Planning – Time may be running out

It is expected that many of the remaining business reliefs will be removed or severely curtailed in the upcoming budget.

One such relief is Capital Gains Tax retirement relief.

Did you know that you may be able to transfer / dispose of all or part of your business to a third party for a value of up to €750,000 without incurring a liability to capital gains tax or indeed even having to retire.

Where the disposal / transfer is to a child full CGT relief is available regardless of the consideration or the market value of the shares. The value of the gift is also reduced by 90% for gift tax purposes.
 

Qualifying conditions

The following conditions apply:

  • The disposal must be made by an individual (and not for example by a company).
  • The individual must be 55 or over.
  • The disposal must be of qualifying assets (e.g. business assets or family company shares).
  • The qualifying assets must have been held for a minimum period immediately prior to the disposal – normally 10 years.
  • When the disposal is of family company shares the individual must have been a working director for a minimum of 10 years up to the date of disposal, 5 years of which were on a full time basis.

A company is defined as a family company when an individual holds either:

  • A minimum of 25% of the voting rights of the company, or
  • A minimum of 10% of the voting rights and his family, including him, holds a minimum of 75% of the voting rights of the company.

It is very important to note that retirement (in the normal sense of the word) is not actually a condition of the relief. Therefore the term “CGT retirement relief” is somewhat misleading. An individual can therefore sell qualifying assets (e.g. the assets of his business or the shares of his family company), claim CGT retirement relief provided he fulfils the conditions and subsequently remain actively involved in the business or remain a shareholder/director of the company.

If an individual disposes of an asset e.g. land, machinery or plant owned by him, but actually used by the family company, the disposal of the asset can also qualify for CGT retirement relief provided it has been owned by the individual for the minimum period and is sold along with his shares. These assets must however be disposed of at the same time and to the same person as the shares. This situation might arise where a shareholder or director rented a business premises to his company, and he is now selling his shares along with the building to a third party.

Remember these valuable reliefs now probably have a very limited life left in their current form.

 If you would like to discuss this relief and other succession / wealth extraction planning please contact Maura Duffy or Mark Butler.

 

 

 

 

 

 

 

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