Succession Planning

Succession planning can mean many things to different people ranging from “should I make a Will” to somebody who consciously considers the range of tax reliefs available and proactively looks at passing assets to the next generation.

There are several fundamental questions that need to be considered in the context of succession planning such as:

1. If I give assets away now, do I have sufficient funds to live on?
2. Are my children sufficiently mature to receive monies or assets?
3. If I have a business, are my children capable of successfully managing the business or should I consider an external management team?
4. How do I achieve the above in a tax efficient manner?

It is important to ask the question “What do you want in the future?”. Once this has been established, then we can consider any taxation matters that arise.

If you wish to sell or transfer a business during your lifetime this can result in a costly Capital Gains Tax (CGT) liability for you. A relief known as retirement relief may be available when looking at the CGT implications on a transfer or gift.

Retirement relief provides relief to individuals on the sale or transfer of certain business assets (including agricultural assets), provided certain conditions are met. One of these conditions is that you must be aged 55 years or older however, you do not actually have to retire. This relief can eliminate the CGT due on shares in trading companies where the business assets and/or certain shares in trading companies are transferred to the next generation. If this is done between the ages of 55 and 65, there is no cap on the value of the business assets. Where the transfer is made after you turn 66 years there is a threshold of €3 million.

Full CGT relief may be available up to a limit of €750,000 if this occurs when you are between the ages of 55 and 65 on transfers to persons other than a child. The limit is reduced to €500,000 once you turn 66.

This relief could result in significant tax saving for a person transferring their business property. Transfers of business assets by way of a gift or inheritance may result in a Capital Acquisition (CAT) liability for the individual receiving the gift or inheritance. Again there are certain reliefs that should be considered such as business property relief or agricultural relief depending on the business to hand.

If the gift or inheritance consists of certain business assets (including certain shares in family companies) the market value of the business assets can be reduced by 90% if certain conditions are met. This relief can facilitate the transfer of a family business to the next generation.
Agricultural relief is a valuable relief which in certain circumstances can provide for the transfer of farm land and farming property between generations, without incurring a large CAT bill. A gift or inheritance of cash where the cash is used to purchase agricultural land within two years of the date of the gift or inheritance could qualify for agricultural relief if conditions are met.

If you plan to gift certain assets during your lifetime, you may be liable to CGT on the transfer of the asset and the beneficiary may be subject to CAT on the same event. A credit for the CGT paid can be claimed against the CAT liability on this same event. A clawback of this credit may arise if the asset is sold by the beneficiary within 2 years. A valuable exemption known as Dwelling House Relief is currently available. This relief allows for the transfer of a residential property either by gift or inheritance to occur free of CAT, provided certain conditions are met. Furthermore, the value of the property is not taken into account when calculating the tax free thresholds for future gifts or inheritance. If you wish to gift an annual amount to your children or grandchildren, there is a small gift exemption of €3,000 that any individual can receive per calendar year free of gift tax. This sum can be received from numerous donors without being subject to tax.

TIPS:

• Utilise the €3,000 a year small gift exemption.
• Be mindful of age in terms of retirement relief.
  
• Consider transferring assets that have a market value which is lower than the price paid for the asset as this should result in no CGT.
  
• Review gifts to children where they are over 18 to ensure they do not fall foul of Revenue guidelines.
  
• If you have foreign properties, consider any foreign taxes that may arise in the event of your death.

​For a fully accurate guide to succession planning in your circumstances, speak with us today.