Following Michael Kinsella’s article in the July/August 2016 edition of The Hardware Journal, Maria Hewson looks at some potential tax considerations arising from the sale of your business.
The sale could give rise to a charge to capital gains tax (CGT), the current rate of which is 33%. However, it may be possible for a business owner to claim retirement relief for the CGT arising from a gain on the disposal of a business or shares in a family company, if certain conditions are met. There is no requirement that the vendor actually retire from the business to avail of the relief.
The amount of tax relief given will depend on the relationship between the seller and buyer:
There are a number of conditions to be met for the disposal to qualify for relief. These include:
Relief given for a disposal within the family may be withdrawn if the assets which qualified for relief are sold within six years of the gift/sale. The CGT will become a liability of the child and not the parent.
Capital acquisitions tax (CAT) is a tax imposed on gifts and inheritances. The current rate of CAT is 33%. Parents can gift a certain amount to their children tax-free without the children incurring any CAT liability. For 2016, the class threshold for gifts or inheritances from a parent is €280,000 per child. Where children (and in some cases, a niece or nephew) receive a gift of certain business assets from their parents, business property relief may be available. This reduces the value of the gift for CAT purposes by 90%. Therefore, if the value of the business property being gifted is €1 million, the application of the relief reduces the value by 90% to €100,000. This €100,000 may be covered by the remaining parent to child threshold.
The relief should apply provided certain conditions are met:
Business property relief will be clawed back if the business ceases to trade or the business is sold and not replaced within a period of six years after the relief has been claimed.
Given the potentially large tax bill that could arise on the sale of your business, it is important to have the correct strategy in place for an exit from your business and to also consider the options for passing on to the next generation. Careful planning is required to ensure that any tax liability that could potentially arise is minimised. While tax should not be the main driver of any future plans, it can become an unwelcome problem if the correct steps are not taken when considering the sale of your business. Please consult your own financial / tax advisor to see how this information affects you personally.
Maria Hewson is a tax consultant at Byrne Casey & Associates. Maria specialises in advising on VAT, property transactions, succession and retirement planning and advising family business and their owners.
This Business Support article featured in the September/October 2016 edition of The Hardware Journal.