Archive for category: DCA News & Views

At EcovisDCA, we understand that effective succession planning goes beyond merely passing assets to the next generation. It involves thoughtful consideration of how to minimise tax liabilities such as Capital Acquisitions Tax (CAT), ensuring your loved ones inherit as much as possible. Here’s a comprehensive guide to navigating CAT in your estate planning strategy.

1. CGT/CAT Offset:
When gifting assets during your lifetime, both Capital Gains Tax (CGT) and CAT may apply. The good news is that you can offset CGT paid against CAT liabilities arising from the same gift, avoiding double taxation. However, this offset isn’t applicable for inherited assets, as CGT isn’t triggered upon inheritance.

2. Insurance Policies:
Consider taking out insurance policies to cover potential CAT liabilities upon your death. The proceeds from such policies used to settle CAT are themselves exempt from further CAT. This strategy ensures that your beneficiaries aren’t burdened with unexpected tax bills.

3. Direct Payment of CAT:
You can opt to pay the CAT liability arising from a gift or inheritance on behalf of the recipient. While this adds to the total value considered for CAT calculations, it can be a strategic way to reduce the financial impact on your beneficiaries.

4. Utilizing Small Gift Exemption:
The small gift exemption allows for tax-free gifts of up to €3,000 per annum from any individual. Leveraging this exemption early and regularly can accumulate significant sums over time, reducing future CAT liabilities. For instance, parents can gift €3,000 annually to each child, building a tax-efficient legacy.

5. Group Tax-Free Thresholds:
Maximize the use of Group Tax-Free thresholds by strategically directing assets. For example, consider gifting assets directly to grandchildren after children have maximized their €335,000 threshold. This approach optimizes tax efficiency and ensures assets pass smoothly through generations.

6. Special Reliefs: Business and Agricultural Relief:
For clients involved in family businesses or farms, special reliefs like Business Relief and Agricultural Relief can substantially reduce CAT liabilities. However, these reliefs come with stringent conditions and require careful planning to fully utilize. Proper structuring and compliance with regulatory requirements can safeguard these valuable reliefs.

The Importance of Early Planning:

Succession planning should start early to maximize tax efficiencies and minimize surprises. Unplanned estates can lead to unexpected CAT liabilities, affecting the financial well-being of your heirs. At EcovisDCA, our expertise in estate planning ensures that your succession plan is not only tax-efficient but also aligned with your long-term goals.

Expert Guidance for Your Succession Plan:

Navigating CAT and other tax implications requires expert advice. Whether you’re planning to gift assets or pass on a family business, we’re here to help you achieve the best possible outcome for your loved ones.

Contact Us Today:

Don’t wait until it’s too late. Start planning your succession strategy with EcovisDCA to secure a prosperous future for your family. Reach out to our experienced advisors for a consultation tailored to your needs. Together, we’ll create a roadmap that preserves your legacy while minimizing tax burdens.

Inheritance tax is a topic many of us tend to overlook as none of us want to think of losing a loved one. Unfortunately, this oversight can lead to significant financial stress during an already painful and challenging time. In Ireland, inheritance tax, also known as Capital Acquisitions Tax (CAT), is something which affects everyone. It is important to be fully informed so that you can appropriately navigate this tax landscape.

It has been reported that in 2019 alone, the Irish government collected €522 million from CAT on €1.6 billion worth of assets. As we always aim to ensure our clients can navigate these issues to their greatest benefit, here we will shed light on how inheritance tax works in Ireland and ensure that your tax liabilities are not wrongly inflated.

What is Capital Acquisitions Tax (CAT)?

Capital Acquisitions Tax (CAT) applies to the value of gifts and inheritances received over specific thresholds during your lifetime. The current CAT rate in Ireland is 33% and it comprises two main sections: the Small Gift Exemption and Inheritance Tax.

• Small Gift Exemption:
  This allows individuals to receive gifts up to €3,000 per year without incurring tax. It is worth noting that this exemption only applies to gifts, not inheritances.
• Inheritance Tax:
  Any inheritance received over the threshold is subject to CAT. For instance, anything inherited by a child over €335,000 is taxed at 33%. This threshold is lower for other relationships.

Payment Deadlines

The responsibility for paying CAT lies with the recipient of the gift or inheritance. Payments must be made promptly:

• For gifts or inheritances received between January and August, payment is due by October 31st.
• For those received between September and December, payment is due by August 31st of the following year.
  Late payments incur penalties and interest charges, making timely payments crucial. As always, we advise getting ahead of these issues with constant filing and organisation of ongoing files.

Thresholds and Tax Calculations

CAT thresholds vary depending on your relationship with the person who passed:

• Group A: €335,000 for children and certain other dependents.
• Group B: €32,500 for siblings, nieces, nephews, and other close relatives.
• Group C: €16,250 for all other individuals.

Strategies to Minimize Inheritance Tax

1. Section 72 Policies: Revenue-approved life insurance policies designed to cover inheritance tax bills. They provide a lump sum on death, free from CAT.
2. Small Gift Exemptions: Consistently using the €3,000 annual exemption can accumulate significant tax-free transfers over time.
3. Dwelling House Exemption: If you inherit a home and meet certain conditions, you may avoid CAT on the property.
4. Business and Agricultural Reliefs: These can reduce the value of inherited business or agricultural property by up to 90%, provided specific conditions are met.

It is essential to plan ahead, even for scenarios we wish to avoid. In terms of Inheritance Tax, planning is vital in order to reduce the financial burden placed upon our loved ones when we are no longer there to care for them. It is worth noting that property is included in the cut off cost, meaning that the price of any property left to a loved one also counts towards the threshold.

By planning ahead and making informed decisions, you can protect your loved ones from unnecessary financial stress during a challenging time.

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We hope that this information has been useful for you and as always, Please do not hesitate to contact us.

As we have stressed many times in the past, SMEs (small and medium-sized enterprises) form the backbone of the Irish working landscape, but often struggle to find the supports they need to stay on track.
On May 15, 2024, the Government announced a new business support package worth up to €150 million, aimed at bolstering these types of companies. This initiative is designed to reduce costs, foster innovation, and ensure long-term sustainability for Irish businesses.
This new initiative introduced a range of measures aimed at immediately supporting SMEs. Key measures include:

• Reopening the Increased Cost of Business (ICOB) Scheme for another 14 days and introducing a second payment of ICOB for businesses in the retail and hospitality sectors.
• Doubling the Innovation Grant Scheme to €10,000, encouraging more extensive R&D and technological advancements.
• Increasing the maximum amount under the Energy Efficiency Grant Scheme to €10,000 and reducing the business contribution rate from 50% to 25%, promoting sustainable practices.
• Raising the lending limit for Microfinance Ireland loans to €50,000 from €25,000, providing greater access to capital for small businesses.
• Expanding the Digital for Business Consultancy Scheme to all sectors with up to 50 employees, supporting digital innovation and efficiency.
• Introducing the National Enterprise Hub online platform for SMEs to access comprehensive information on government business supports.
• Implementing an enhanced ‘SME Test’ to evaluate the impact of new regulations on small businesses.
• Raising the employer PRSI threshold from €441 to €496 from October 1, 2024, to relieve financial pressure on employers with minimum wage workers.
• Utilizing the €1.5bn surplus in the National Training Fund to future-proof workforce skills in SMEs, ensuring access to lifelong learning opportunities.
• Waiving fees for outdoor dining for hotels, restaurants, and pubs until December 31, 2024, saving establishments approximately €125 per table.

Minister Burke emphasized the importance of these measures, stating:

“Our small businesses are the backbone of our local economy and provide much-valued employment in communities across the country. These measures represent agreement from across the government on the need to support our SMEs in the face of rising costs – while also balancing critical progress in terms of working conditions.”
Finance Minister Michael McGrath praised the package, stating:

“The package of measures being announced today is fair and balanced, and underlines the recognition across the government of the crucial role SMEs play in our economy and in communities across Ireland.”
The initiative aims to create a robust, dynamic, and resilient economy, while also continuing to support businesses which have suffered following lockdown. This comprehensive approach not only supports current SMEs but also lays the groundwork for long-term prosperity, ensuring Ireland remains competitive on the global stage. Fingers crossed we will continue to see dedicated and comprehensive supports for SMEs.

The Finance Act 2022 was enacted on 15 December 2022. Amongst other changes to pensions, the Act confirmed that the Benefit in Kind for an employee, which was previously triggered by an employer contribution to a Personal Retirement Savings Account (PRSA), has been removed.

This change has come into effect on 1 January 2023 and is considered to be one of the most important changes in the pensions industry, since ARF’s.

Changes for Employees

It now means that ordinary employees, saving into a (PRSA) will now be given the same tax treatment as occupational pension scheme members in relation to any employer contributions to their pension scheme. Previously where an employer paid into the PRSA, that employer contribution used up part of the employee’s own scope within their age-related limits. This is no longer the case, as employer contributions are now un-constrained. Employee contributions however, are still subject to the age-related contribution limits and the Earnings Cap (currently €115,000).

Changes for Business Owners

The real change however has impacted the ability of business owners to fund pensions substantially. Currently the interpretation is that the new legislation does not place any upper limit on an employer contribution to a PRSA as would have traditionally existed in the old executive pension, these changes have removed the salary and service rules which restricted how much could be invested into pension on an annual basis.

This now means someone could draw a salary of €30,000 from their business and make a pension contribution of €2,000,000. This may seem extreme however it is currently allowed under the legislation.

An employer can only make a contribution to a PRSA for a bona fide employee. That is defined as someone who is registered as an employee of that entity in receipt of salary with taxation applied at source. Thereafter the level of salary paid, service to date and level of pension benefits already in place are irrelevant. This also opens up the business to make substantial pension contributions for the spouse/partner and any family member working in the business irrespective of salary, service, or shareholding.

The key issues that now apply relate to the to the Pension Fund Threshold, currently this is at €2,000,000 and the employer’s capacity to fund a sizable contribution from their business accounts.

The impact on current financial advice

Many company directors will be funding their retirement using an executive pension arrangement. For many, the funding rules within those schemes will allow more than enough scope for the contributions they wish to make for their retirement. For directors on low salaries who have large cash balances or profits, they can now extract these and obtain tax relief immediately in year one.

Another aspect of the PRSA that is attractive is the fact that the funds can be paid in full to the estate of the deceased member in the event of death whereas occupational pension schemes place restrictions on the maximum allowable tax-free lump sum payable with residual funds being used to provide a pension via an Annuity or purchase an Approved Retirement Fund (ARF) for a spouse or dependents.

20% Directors of investment firms

The Revenue has been very clear that a 20% director of a company that is treated for tax purposes as an investment company, was precluded from funding a pension from that business, that it was in affect non pensionable employment. That continues to be the case for executive pension however no such restriction currently exists in respect of the PRSA. As a result, where a 20% director of an investment company is registered as an employee of that company and receiving a salary, then the employer could make an employer contribution to a PRSA for the benefit of that director.

Where can PRSA’s invest?

It is possible for non-standard PRSA’s to hold an investment property, direct equities, managed or protected funds.
Another key benefit of PRSA’s is no entry or exit costs plus a fixed and transparent management charge.

Summary

The new legislation for PRSA’s presents a unique and golden opportunity for employers and employees alike. This legislation could change and with it a golden opportunity. Our suggestion is to get advice and see how PRSA pensions can work for you and your family.

In keeping with the many changes to taxation incurred in recent years, The Minister for Finance has recently announced that the interest rate on Warehoused Tax Debt has been reduced to 0%. This comes on the heals of many businesses (particularly in the hospitality sector) closing their doors in recent months, citing exponential pressures as the cause.

The Tax Debt Warehousing Scheme was introduced for businesses following the Covid-19 Pandemic, which continues to impact the Irish Business Landscape to this day. The scheme was intended to help businesses experiencing cash flow issues, allowing them to defer payment of some tax liabilities until their cashflow situation improved. Where there was once €3billion owed in tax debt by 110,000 businesses, there is currently €1,72 billion owed by 57,500 businesses under this scheme.

Revenue have confirmed that any businesses who have already paid their warehoused debt at the previous interest rate of 3% will receive a refund of that interest. Revenue have also stressed that there are “flexible payment options available” in respect of warehoused debt in the hopes that more businesses will find themselves in a position to begin clearing this debt. These flexible options include the extension of the payment term beyond the usual 3–5-year term. These decisions will be made on a case-by-case basis.

Minister McGrath has said that “The Government is acutely aware of the ongoing cost pressures faced by businesses and is determined that viable businesses are given every chance to succeed in a challenging trading environment.”

The Finance Minister will be bringing forward legislation to formalise this 0% interest rate change, but Revenue will implement it administratively in the meantime.

All businesses availing of the Tax Debt Warehousing Scheme must engage with Revenue before May 1st, 2024, to either pay their debt in full or discuss a payment plan. All businesses must also file their current tax returns on time and meet current tax liabilities while availing of this scheme.

As always, our advice is to keep ahead of all tax affairs to ensure full compliance, and the key take away here is engagement with Revenue. Rather than the “head in the sand” approach, it is essential to keep in touch with Revenue and arrange payment plans as needed.