As noted in that client update, the key taxes to be considered
on a business transfer are Capital Gains Tax (CGT) for the
transferor and Capital Acquisitions Tax (CAT) and stamp duty for
the transferee (beneficiary of the transferred assets). CGT and
stamp duty arise whether the assets are gifted or not.
In view of increasing rates of capital taxes, restrictions on
available reliefs which are discussed below, and challenging
economic conditions, significantly greater value attaches to
carefully planned ownership of business, to minimise capital tax
costs affecting businesses.
As with any strategic business decision, timing is of key
importance. The introduction of the changes outlined below means
that positive estate planning cannot be delayed where business
owners meet the relevant age profile.
On 6 December 2011, the Minister for Finance's Budget
(Budget 2012) announced a number of changes to CGT and CAT. These
include an immediate increase in each tax rate to 30% and
significant restrictions of CGT relief after 31 December 2013.
However, there is still a window of opportunity to allow people to
be proactive and to take advantage of the current reliefs.
Capital Gains Tax – recent changes
The rate of CGT has increased from 25% to 30% for disposals made
on or after the 7 December 2012.
As noted in our
March 2011 update, full relief from CGT is available where an
individual, aged 55 or over, gifts a qualifying business, shares in
a family company or a farm to a child, regardless of the value.
However, if the assets gifted to the child are sold within six
years of the date of gift, the CGT becomes payable.
Budget 2012 has introduced an upper limit of EUR 3 million on
the asset value to which relief applies where an individual aged 66
or over disposes of business or agricultural assets to their
children, after 31 December 2013. Unrestricted relief continues to
apply to individuals aged 55 years to 66 years.
For business owners who will be 66 by the end of 2013, it is of
vital importance if considering transferring the business to a
family member, that they do so by end 2013.
Prior to Budget 2012, relief was granted from CGT on disposals
made by individuals aged 55 or over of qualifying business or
agricultural assets to persons outside of the family where
consideration was less than €750,000.
Budget 2012 confirmed that the current threshold of
€750,000 shall continue to apply to disposals by
individuals aged 55 to 66. However, the qualifying limit is reduced
to €500,000 for disposals by individuals aged 66 or over
after 31 December 2013.
Capital Acquisitions Tax – recent changes
The CAT rate has increased from 25% to 30% for gifts and
inheritances taken on or after 7 December 2011. Group tax-free
thresholds for gifts and inheritances taken on or after 7 December
2011 are revised as follows:
Significantly, there has been no restriction to the business
relief provisions from CAT, which results in an effective CAT rate
of 3% on the gifting of chargeable business assets. However, it is
likely this relief could be restricted in due course.
Window of opportunity
In spite of the restrictions to the retirement relief code, a
window of opportunity currently exists until 31 December 2013 for
business or farm owners who will by then be aged 66 years. Any
business or farm owner who falls within this age bracket has until
31 December 2013 to transfer his assets to the next generation of
his family without a CGT liability.
From the beginning of 2014, restrictions on retirement relief
will place a heavy tax burden on these business and farm owners who
are seeking to transfer their qualifying assets.
In an effort to stimulate the property market, a new relief from
CGT has been introduced which applies to property bought between 7
December 2011 and 31 December 2013 and where the property is held
for more than seven years. Where such property is held for more
than seven years, the gains attributed to that seven year period
will not attract CGT.
A single flat rate of stamp duty of 2% (reduced from 6%) now
applies to non-residential property from 7 December 2012. This
complements a 1% stamp duty rate on residential property on value
up to EUR 1million, and a 2% rate thereafter.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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