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Planning Your Best Exit Strategy

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We have discussed in the past, the importance of having a long-term plan for your business, particularly for when you are no longer in a position to run the company yourself. The importance of an exit strategy or long-term plan can not be overstated for businesses of all sizes, particularly small and medium enterprises (SMEs). It is as always advisable to stay abreast of current issues and changes that may affect the long and short term plans you have in mind for your business and in this vein, there has been some cause for concern in recent days regarding ways that taxation could inhibit future planning.

A new report issued by PwC this week has stated that current tax rules which hit the transfer of family businesses are putting both jobs and companies at large in danger. These rules make options incredibly limited for business owners as they limit owners passing on their business to family members while they are living. Some anomalies to the system in this respect mean that the new business owner could find themselves incurring high tax costs that would potentially place additional pressures on the business and put it at risk.

PwC have given some suggestions on changes they would like implemented in the next budget to protect business owners and entrepreneurs in the event of passing their business on while still living. One such suggestion is the removal of the current cap of €3million on the value of business assets which can benefit from Retirement Relief. There is also calls for the Entrepreneurial Relief Capital Gains Tax threshold to be reduced to allow further relief to these businesses as well as increasing the lifetime limit applicable and reducing current restrictions which may exclude many. It has also been suggested that tax relief options could be made available.

Consultation with the Government for this process is ongoing and submissions will close on May 24th and there are hopes that there will be changes announced in the next Budget to combat this issue and make the family handover of businesses a smoother and more profitable process. The transition of a business is inevitably a stressful and concerning time, so any changes that can be of benefit and ensure the longevity of an existing healthy business should certainly be embraced.

Should you have any queries or concerns on any business or financial matters, please do not hesitate to contact us here at EcovisDCA where we are always happy to help you and your business.

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~ DCA PARTNERS, DECLAN DOLAN & EAMONN GARVEY

Entrepreneur Relief and Retirement Relief

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Oh, the Relief!

It is an unfortunate fact of business life that at some point, your own interactions with your company must eventually come to an end. Whether or not you wish to wind your company down entirely, we have spoken in the past about the importance of having an exit strategy in place to ensure a problem-free transition during this time, but some may not know that there are a couple of relief options already in place in Ireland which may be of assistance during this time of major change. Entrepreneur Relief and Retirement Relief can in fact be used in conjunction with one another and may offer some much needed relief when exiting your business.

If the time has come for you to dispose of your business these options of tax relief might be of great benefit to you. In 2014 it was decided that a new relief aimed at entrepreneurs needed to be brought into effect as taxation issues had created a great many challenges for Irish entrepreneurs, who are the essential framework of Irish business life. Entrepreneur Relief offers tax relief to entrepreneurs at all stages of their lives to support the reinvestment of capital acquired from the disposal of business assets. Retirement Relief, on the other hand of course applies only to the retirement stage.

Entrepreneur Relief is especially beneficial to all entrepreneurs under retirement age as it offers a reduced rate of CGT (Capital Gains Tax) to entrepreneurs disposing of their business up to a limit of €1million. This relief reduces the tax rate to just 10% from 33%. Naturally, as with all relief options, some conditions are in place to restrict those who are eligible to apply. Your business must be a currently trading company and you must hold proof of active engagement with the company i.e. you must hold or have held at least 5% shares in the business or have spent at least 50% of your working time in the business over the previous three years.

Interestingly, Retirement Relief can be used on the same disposal as Entrepreneur Relief and applies to individuals over the age of 55. Again there are a number of qualifying conditions that apply here. The disposal must be made by an individual (not a company) aged 55 or over, the disposal must be of qualifying assets and the individual must have been a working director for a minimum of 10 years if the disposal is related to a family company. Retirement is not a requirement of this relief.

We would advise that anyone interested in either or both of these relief options look into them in great detail before organising an application in order to maximise the benefit to you and your business.

Should you require any help, advice or guidance on any financial or business matters, please don’t hesitate to get in touch with us here at EcovisDCA, where we will be happy to support you in getting your business to the next level.

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~ DCA PARTNERS, DECLAN DOLAN & EAMONN GARVEY

REVENUE BRIEF ON CGT

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Following last month’s budget, and the recently planned clamp down on suspected tax evasion there has been some lingering confusion regarding what is required for various taxes. The main culprit of causing confusion is Capital Gains Tax (CGT). As a result, the revenue have recently released a brief which should clear up these lingering confusions and confirm for all when this tax and the associated documentation will be required.

The Revenue have stated that there were a number of requests for clarification from both tax practitioners and legal offices. It is hoped that this brief will shed some light on these lingering issues.

Please see the revenue brief below:

Clarification of circumstances where CGT clearance certificate not required

Arising from a number of requests for clarification from tax practitioners and legal offices, the purpose of this Brief is to set out particular circumstances in which the provisions of section 980 Taxes Consolidation Act 1997 (TCA) will not be applicable to disposals/sales of assets that are referred to in subsection (2) of that section.

Disposals of assets by bodies which carry an exemption from capital gains tax (CGT)

The section will not apply to a disposal of an asset by a person where any gain accruing on the disposal would not be a chargeable gain. Examples of such disposals in the TCA are:

  1. A disposal by a pension fund or arrangement carrying an exemption from CGT under section 608(2) or (2A).
  2. A disposal by an investment undertaking within section 739C.
  3. A disposal by a charity to which section 609(1) would be applicable.
  4. A disposal by the National Asset Management Agency (NAMA) or by any other body specified in Schedule 15.

Sales by financial institutions of loans secured on land in the State

The section will not apply to the sale by a financial institution of loans secured on land in the State where the sale arises in the ordinary course of the carrying out of its trading activities. In other words, the section will not apply to the sale of such a loan by a financial institution in circumstances where any profit on the sale would be treated as a trading receipt of its trade.

However, in regard to loans secured on land in the State, Revenue wishes to make clear its view that:

  1. In general, such loans are interests in land for the purposes of section 980, and
  2. In general, such loans are securities for the purposes of that section.

It follows, therefore, that the provisions of section 980 will have application where the sale of such a loan would be a disposal for CGT purposes.We hope that this will illuminate any grey areas of concern regarding the current rules of taxation, but should you require any further assistance, please don’t hesitate to get in touch with us here at DCA

NO MORE LOOPING THE LOOPHOLES

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As we have discussed previously, this year’s Finance Bill includes another massive clamp down on possible tax evasion by allowing the Revenue greater access to previously confidential information. In addition to this, there will now be greater measures in place to address current loopholes in Capital Gains Tax. These loopholes can result in major discrepancies which make it difficult to assess taxation in general and the consistent avoidance of payment creates larger financial issues.

 

Section 34 of this year’s Finance Bill is designed to tighten the definition of shares deriving their value from specified Irish assets for non-residents. The current loophole allows avoidance of Capital Gains Tax when cash is transferred to a company prior to disposal of shares. This means that when the time comes for shares to be disposed of, their value is derived mainly from cash rather than assets. In cases where the greater value lies in shares than assets, the company can avoid paying this tax.

 

Section 35 of the bill also limits the avoidance of paying Capital Gains Tax as it closes an existing loophole which allows for non-payment of this tax where a non-complete clause has been signed. Similarly, in section 36 of the bill, a provision has been made which prevents avoidance of the tax through transferring property to non-resident companies.

Another loophole which has previously resulted in the avoidance of paying Capital Gains Tax is a provision which defers the tax if companies are sold within a larger group. The new bill includes a section which puts an end to the misuse of this particular provision (section 38 of the Finance Bill).

 

These measures are designed to counter avoidance of this tax and others, and as our technology advances we are sure to see further measures put in place in future Finance Bills as the Government ramps up its efforts to counter tax evasion. Since the onset of the financial crisis, there has been a consistent effort to put an end to tax evasion, occasionally to the detriment of other seemingly more crucial issues such as the housing crisis. It is hoped that creating preventative measures such as these will be enough to stem the flow of current tax evasion and prevent future efforts at avoidance, rather than creating further loopholes which will need to be closed off. This will, in turn allow the financial focus to shift elsewhere.

 

If you are concerned about your status in paying Capital Gains Tax, or indeed any form of taxation and require some professional advice regarding your financial matters please don’t hesitate to drop us a line here at DCA Accountants

NEW MORTGAGE RULES

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The Central Bank’s much debated and often bemoaned stricter mortgage rules were finally officially announced last month and officially put into place only last week.

 

Under these new tighter guidelines first time buyers appear to have business as usual as they can continue to apply for a 90% mortgage up to a limit of  €220,000. Anything above this limit will be subjected to the new 20% deposit requirement. Given that the average house price in Dublin is approximately €269,000 (according to latest published results from myhome.ie) it would seem unlikely that many buyers will escape the clutches of this requirement entirely.

Those looking to trade up on their existing homes will be entirely subjected to the 20% requirement for the entire sum of their loan which has caused concerns that many young couples and families may find themselves ‘locked out’ of the property market or, having already taken a step onto the first rung of the property ladder in easier financial climates, may find it impossible to take the next step, or fall off completely.

 

There will also now be a cap on the amount that can be loaned, something that banks and mortgage lenders previously had left to their own discretion. This sees lenders being restricted to only borrowing 3.5 times their income. Given that there is massive disparity between wage scales across various sectors, this rule would seem to leave those in lower earning sectors out in the cold.

 

It was reported last week that banks have been urging mortgage defaulters to seek a familial ‘dig out’ to help them meet their mortgage repayments.  These new tightened mortgage rules could now see buyers returning to the ‘bank of Mum and Dad’ model of purchasing in order to meet the deposit demand. It was recently reported that the Credit Union will be willing to allow parents to borrow significant amounts to assist with their children’s deposit as the prospective buyer themselves would be unable to take out a loan.

 

As the Capital Acquisitions Tax on gifts currently allows an un-taxed amount up to €225,000 we may well expect to see these rules also tightened. As it stands, without the addition of a parental gift the average couple can expect to be saving for at least four years to meet their deposit requirements for first time buying, whilst those trading up may well be reliant on these so-called ‘dig outs’ when they have outgrown their current dwelling.