Updated: Sep 25, 2019
Retirement and succession planning, why you should speak to your financial planner as well as your solicitor?
''An ounce of prevention is worth a pound of cure’ - Benjamin Franklin''
1. Taxation Reliefs for Retiring Business Owners
ONE of the few tax benefits that business owners receive is Retirement Relief. This means that if you are aged 55 years or older, you may be able to claim Capital Gains Tax relief when disposing of your business or farming assets. The rules around this are relatively straight forward but we believe it is a discussion each business owner should have with his/her accountant and/or tax adviser to ensure that they satisfy the conditions specified in the legislation to enable individual circumstances for the reliefs in question.
Disposal Age 55 to 65
No CGT payable on sales to a third party up to €750K .There is no limit on the amount of CGT exemption to a child.
Aged 65 or over
No CGT payable on sales to a third party up to €500K. The CGT exemption is limited to €3m when disposing to a child.
Recent articles have appeared in the general media discussing Revenue’s interest in this area, particularly in relation to private company valuations. There are many aspects to these reliefs and indeed many pitfalls, so if you are planning your retirement, please ensure you are properly advised in relation to reliefs available and whether or not you satisfy the criteria.
2. Succession Planning
This is the process of preparing a business for transition to the next generation. This may be a straight forward process for many businesses; for others it may not. Careful succession planning greatly increases the probability of success of businesses transferring to the next generation. Some of the important questions to explore in Succession Planning are:
Are there members of your family that have the capability and willingness to take over the family business?
Are there members of your family that have an interest in your family business and could run it if they received additional education or resources to help them?
How do you look after family members that are not in a position to run the business in a way that financially provides for them but doesn’t jeopardise the future of the business?
How do you protect the financial interests of family members not actively running the business?
How do you align how you would like to see your company run with the plans your children have for the company, striking the delicate balance between preserving tradition and values while embracing change?
Many times families find using a trusted professional adviser very useful when working on these matters. My advice is don’t put it on the long finger and leave it until it is too late to make proper plans.
3. Nursing Home Care, the Fair Deal & Business Assets
This is a consideration for business owners and should be reviewed as part of your succession planning process. Cabinet has recently approved changes to the fair deal scheme for farms and small businesses. The legislation has yet to be approved by the Dáil and the Seanad which is expected in the Autumn. The changes will introduce a cap on a person’s contributions from farm/business assets over 22.5% over three years where a family successor continues to operate it for six years. This 22.5% cap also applies to a person’s home. Notwithstanding these changes (which we welcome), the financial burden of fair deal is significant and is worth factoring into a planning process.