Most business owners have spent an enormous amount of energy growing their business. They may have sacrificed time with their families, faced financial hardship, struggled to navigate complex legal arrangements, and had to manage diverse workforces. In short, almost all of them will have faced exceptional demands. Exiting the business is one of the most important personal and professional decisions any business owner can make so it needs to be handled sensitively and seamlessly.
Succession planning and business exits can, of course, take many forms. Here we focus on the gifting or inheritance of a business; what are the key questions a business owner should answer when transferring a business, creating a financial plan and the tax reliefs available.
Key questions when developing a plan for transferring a business.
– Will the business continue as a going concern?
– If so, who will own and manage it?
– Does it make more sense to sell or liquidate a business on retirement to realise cash value for living expenses or simple distribution after death?
– What happens when some next generation family members are involved in the business and some are not?
– If business wealth makes up a significant portion of an individual’s total wealth, how can they ensure that enough lifetime wealth will be available to them long after a transfer has been made?
Once these questions are answered a detailed financial plan based on the unique situation of the business owner can be created.
Creating a financial plan
When we sit down with a business owner who is considering passing on their business asset to the next generation, we make a detailed financial plan. Our starting point is to focus on the individual and their own financial position – both today and into the future. Time and time again, we see scenarios whereby an individual has not made adequate provision for their own future income needs following a business transfer – even when that transfer is to a child or children and, therefore, there will be no proceeds for the business owner from the disposal. Planning and obtaining tax advice as early as possible is also essential to ensuring qualification for the relevant tax reliefs.
Tax Reliefs
The tax reliefs that can apply on the transfer of a business or on a business sale can be complex. Tax legislation is always subject to change so tax considerations should be a priority in any disposal. The 33% rate of Capital Gains Tax applies to any gains that are not covered under available tax reliefs.
There are three main reliefs available to business owners:
– Retirement relief for the business owner
– Entrepreneur relief for the business owner
– Business relief for the successor to the business.
Which of these reliefs applies depends on several factors, including the value of the business, whether the business is being transferred to a family member, and the age of the business owner. The key consideration, of course, is to minimise Capital Gains Tax and Capital Acquisitions Tax.
These are just some of the considerations that are important to your inheritance planning. The key is to get started on your plan as soon as possible and to seek out tax and legal advice. ‘A Lasting Legacy: Guide to Inheritance & Estate Planning in Ireland’ provides further support and guidance on all aspects of inheritance planning. A copy of the guide can be downloaded from www.goodbody.ie
At Goodbody business advisory we help owners create shareholder value and ensure their business wealth works for them. We ensure your business is set up for success, and ensure you realise maximum value on exit. You can find further information on succession planning and the latest guide to inheritance planning at www.goodbody.ie
This is a marketing communication – This document is not to be relied upon in substitution for independent judgement and financial advice. Nothing in this publication constitutes legal, accounting or tax advice, or a representation of the suitability of any product or strategy to your individual circumstances. Goodbody Stockbrokers UC, trading as Goodbody, is authorised by the Central Bank of Ireland. This document is issued by Goodbody Stockbrokers UC, 9-12 Dawson St, Dublin 2, D02 YX99, Ireland, company reference number 110535.
CATRIONA COADY – Head of Tax, Goodbody
