Passing wealth to the next generation
Submitted by bdoieadmin on Tue, 2010-11-16 15:17
The early transfer of wealth is an important part of any succession strategy. In addition, with the substantial reduction in the value of all assets in Ireland due to the recession, there is an unprecedented opportunity to look at the valuation of assets to be transferred.
The transfer of assets by way of gift may be liable to capital gains tax (current rate 25%) in the hands of the transferor and gift tax (current rate 25%) in the hands of the beneficiary.
However, in the case of business assets to include shares in a family company, the tax legislation provides that the transferor may qualify for an exemption from capital gains tax. The main conditions would be that he or she has owned the assets for at least 10 years and is aged over 55 years. In addition, the beneficiary of the business assets may have the value of the assets transferring reduced by 90% for gift tax purposes if certain conditions are satisfied, the main condition being that the assets must have been owned for at least 5 years. From 1 January 2010, if the value of all assets after tax relief where relevant received by a beneficiary since 5 December 1991 by way of gift or inheritance does not exceed the following lifetime thresholds, no tax will be payable by the beneficiary:
- Parent to Child €414,799
- Blood Relative €41,481
- Others €20,740
The Commission on Taxation was established by the Irish Government in February 2008 to review the structure, efficiency and appropriateness of the Irish taxation system. The intention was that its work would help establish the framework within which tax policy would be set for the next decade at least. The Commission issued its report on 7 September 2009 and it recommends that the above reliefs are retained but restricted.
In relation to the capital gains tax relief, it recommends that the relief should be limited so that it only applies to asset values up to €3m. Where the value of the asset transferred exceeds €3m, the part of the gain that is attributable to the excess over €3m would be charged to tax. The Commission also recommends a reduction of no more than 75% of the value of the business be allowed before gift tax or inheritance tax on business assets is calculated subject to an overall monetary limit of €3m in the amount of the reduction.
If these proposals are implemented, they would represent a serious threat to the survival of family business beyond the current generation as assets transferred may have to be sold or broken up in order to fund the tax arising.
How Can BDO Help
If it is proposed that there will be a transfer of business assets or family company shares within your family, you should consider bringing forward these plans so that the tax reliefs that are currently available can be maximised.
It should be noted however, it is our advice that a family should take professional advice to ensure that the transition to the next generation is implemented with the support and participation of all family members.
An agreed plan will provide for the following:
- A structured handover of business assets
- Make provision for the retirement of family members
- Advise on a tax-efficient succession plan for other assets
At BDO our Private Clients Team have developed the Family and Owner Managed Business Programme to assist owners and their families to deal with the transition successfully.
Click here for Private Clients.
Talk to us, contact a member of our Tax team.