succession planning & topical issues · topical tax developments – offshore disclosures...
TRANSCRIPT
Succession Planning & Topical Issues
Ciaran Desmond Ciaran Desmond Solicitors
30th March 2017
Succession Planning for Your Business
• Non Tax Considerations
• Main structures: • Holding Companies
• Retirement Relief/Entrepreneur Relief
• Growth Shares
• Limited Partnerships
Succession Plan - Matters for Consideration
• Tax considerations facilitate rather than drive the succession plan
• Other considerations: • Future commercial strategy for the business
• Family politics
• Successors identified and ready?
• Scenarios: • Pass on management to the next generation
• Pass on ownership but bring in professional management
• Sell to a third party
• Don’t know
Typical SME structure
John (50%) Mary (50%)
TradeCo
Succession Planning – Tax Reliefs
• CAT Business Relief
• CGT Retirement Relief
• CGT Entrepreneur Relief
• Reliefs are complex – onerous conditions to be satisfied
Holding Company
• Introduce holding company by means of “share for share” relief
John(50%) Mary(50%)
Holdco
Tradeco
Introduction of Holdco
• Potential CGT exemption on future sale of Tradeco on satisfying certain conditions
• 100% of gross proceeds can be used for future investment
• Dividends can be paid to Holdco from Tradeco tax free
• Share for Share “bona fide” test to be satisfied
• Possible to retain some shares in personal name to potentially avail of retirement relief/entrepreneur relief?
Introduction of Holdco
• Preferable to introduce Holdco on commencement of the business
• “Bona fide” test to be satisfied otherwise i.e. can’t be introduced for tax avoidance purposes
• Can be difficulties if wish to introduce a personal holding companies for shareholders with less than 51% of the company
Entrepreneur Relief
• Introduced in Finance Bill 2015 & improved in last Budget
• 10% rate of CGT on first €1million proceeds from sale of “chargeable business assets”. Balance taxable at 33%
• 3 year holding period
• 5% shareholding
• Director/employee required to spend 50% or more of their working time in a managerial/technical capacity for 3 out of the 5 years immediately prior to the sale
• Other conditions similar to retirement relief
Entrepreneur Relief – UK Regime
• 10% rate of CGT
• Gains up to STG£10m
• 12 month holding period
• 5% shareholding requirement
• Applies to both employees and directors
• Applies to assets owned personally but used in a qualifying company’s trade
• Can apply to gains post cessation and certain trusts
Retirement Relief - Example • John and Mary are 50/50 shareholders in Tradeco. John has worked full time in the
business for 30 years. Mary hasn’t worked in the business. Both John and Mary are over 60 years of age. Their son James is now running the business and they want to transfer their shares to James. The company is worth €2million
• Main tax considerations:
• CGT - Subject to satisfying all other conditions, John should qualifying for retirement relief on the transfer of his shares so no CGT should arise to him. Mary will be subject to CGT at 33% of €1m on the transfer of her shares as she will not satisfy retirement relief conditions
• CAT - Subject to satisfying all other conditions, James should qualify for business relief reducing the value of gift to €200k. No CAT if no previous gifts
• Stamp duty – €20,000
• Total tax cost €350k
Retirement Relief - Planning
• Mary transfer her shares to John and John subsequently gifts the shares to James.
• No tax on transfers between spouses and John takes Mary’s period of ownership for retirement relief purposes. No CGT should arise.
• Revised tax cost (1%) €20,000
Retirement Relief - Planning
• If excess cash in the company John could obtain up to €750k cash from the company for his shares.
• Steps: • Mary gifts her shares to John – No tax consequences
• John gifts €1,250,000 worth of shares to James – No CGT (retirement relief), no CAT (business relief) stamp duty of €12.5k
• James sets up Newco and Newco purchases €750k worth of shares from John. Once structured correctly this can be funded by Tradeco John receives €750k tax free. Newco has stamp duty liability of €7.5k.
Retirement Relief & Pensions - Spouse
• If Mary had been a full time working director of the company for at least 5 years it would have been possible to take €1.5m rather than €750k from the company tax free
• In addition if Mary had been working in the company obtaining a salary commensurate with duties pension contributions could have been made for Mary into a self administered fund. In this way both John & Mary would have pension limit of €2million each
• Consideration to get spouse involved in the business where possible
Retirement & Business Relief - Planning • Excess Company Cash – not an issue for retirement relief but an issue
for business relief
• Investment Assets on Balance Sheet? Impact on retirement and business relief
• Property held personally – may also qualify for retirement relief if transfer at same time and to the same person
• Termination Payment
Growth Shares - Example
• John and Mary wish to retain value of up to €2million (current value) of the business. They are happy for James to benefit from any increase in value beyond this €2million threshold.
• The shares can be reclassified such that John and Mary hold A Preference Shares with a value capped at €2million. James is given ordinary shares with no cap. If desired John and Mary can retain voting control.
• CGT and CAT on the value of the “growth shares” given to James. Given that the shares will only be entitled to future profits valuation of the shares likely to be minimal/low.
Limited Partnerships
• Works well where parents wish to pass value but not control to the next generation
• Parents are “general partner” with say 1% interest in the partnership. General partner has total responsibility for management of the partnership.
• Children are “limited partners” and cannot be involved in the management of the partnership
• Any future increase in the value of the partnership assets accrue to the children. Once parents are happy for children to take control of the assets the partnership is dissolved
Topical Tax Developments – Offshore Disclosures
• Deadline of 30th April 2017 for last opportunity to make qualifying disclosure in relation to offshore matters
• “Offshore” means any non-Irish income or gains and not just income from tax havens e.g. includes UK, US etc
• In addition, after 30th April it will no longer be possible to make a disclosure which partly relates to Irish income/assets or foreign income/assets
Offshore Disclosures
• These provisions coincide with recent developments in mandatory automatic information exchange
• Over 100 jurisdictions exchanging information with Irish Revenue some of which Revenue have received already
• Information will relate to foreign assets, bank accounts & shares held by Irish resident individuals
Offshore Disclosures – Things to Watch
• Has foreign income been treated correctly in returns – if not and subsequently uncovered by Revenue it will not be possible to make a qualifying disclosure.
• For example: • Gains on certain offshore funds are subject to income tax rather than CGT
• 8 year rule for certain funds – has it been accounted for?
• Restriction on loss relief for certain funds
• Fund investments generally don’t qualify for the remittance basis of tax – impact of non doms
• Complex tax treatment of foreign life polices
Topical Revenue Matters - Miscellaneous
• Bankruptcy – kills historical debt
• Insolvency – Revenue are engaging
• BIK on meals
