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Transfer of Family Business

Potential tax liabilities; A.Capital Acquisitions Tax (CAT) BCapital Gains Tax C.Stamp Duty

Capital Acquisitions Tax

• Sections 90 -102 of the CAT Consolidation Act 2003 introduced a relief for Capital Acquisitions Tax in respect of gifts and inheritances of business assets.
• Section 92 of the CAT Consolidation Act 2003 provides that the relief is a reduction of 90% of the taxable value of the relevant business property taken by the beneficiary.
• The taxable value is calculated as follows; Market Value of relevant business property plus any liabilities incurred less any consideration paid.
• "Relevant business property" consists of the following:
  1. Property consisting of a business or interest in a business
  2. Unquoted shares or securities of a company carrying on a business provided that the company is incorporated and the beneficiary will on the valuation date after taking the benefit either own more than 25% of the voting rights or have an aggregate nominal value which represents 10% or more of the aggregate nominal value of the entire share capital of the Company provided the beneficiary has been a full time office/full time employee of the Company for the five year period preceding the gift/inheritance.

Excluded from their relief are the following:

1. Assets which can qualify for both agricultural relief and business relief. Agricultural relief must be claimed.
2. Businesses which consist wholly or mainly of one of the following:Dealing in currency, security, stocks or shares, lands or buildings or making a holding investments
3. Any land or building, machinery or plant situated in the State which immediately prior to the gift/inheritance was used by the business or partnership of which the disponer was a partner or by a Company over which the disponer had control, used wholly or mainly for the purposes of the business.

• It is important to note that any land or buildings owned by the disponer personally but used wholly or mainly for the purposes of a business carried on by the disponer or which the disponer controlled or was a partner that the share in the company or the partnership must be taken by the beneficiary with the relevant business property in order for those assets to qualify for relief.
• Section 94 of the CAT Consolidation Act 2003 provides that the relevant business property must have been prior to the date of the gift or inheritance being owned by the disponer two years prior to death in the case of inheritance and five years in the case of a gift.
• If the disponer disposes of the relevant business property and replaces it with alternative relevant business property the relief can still be obtained however the period of ownership of which both relevant business properties together were owned must comprise 5 years out of the six year period in the case of a gift or two of the three year period in the case of an inheritance come immediately prior to the date of the said gift or inheritance.
• It is of paramount importance to understand that if business relief is claimed and if the property is sold within 6 years of the date of the gift or inheritance and is not replaced within one year of the sale by other relevant business property the relief is clawed back.

Capital Gains Tax

• Under Section 598 of the Taxes Consolidation Act 1997 a relief from Capital Gains Tax is provided for in respect of a person who is over 55 years of age and disposes of business assets.
• The relief takes the form of a deferral of the Capital Gains Tax which arises on the disposal of qualifying assets.
• Where the disposal is to a child there is no limit on the amount of the consideration.
• A child includes a niece or nephew who has worked in the business substantially on a full time basis for a period of five years prior to the date of disposal.
• Qualifying assets for the purpose of this legislation includes shares in the family business, shares or securities in the family, trading/farming/company which the individual has owned for at least ten years and of which the individual had been a working director for at least ten years prior to the disposal, and a full time working director for at least five of those years.
• Retirement relief can now be claimed in respect of assets owned by an individual and used by his family business.
• However if the child disposes of the assets within six years from the date of disposal by the parent the child is liable to pay the deferred tax in addition to any tax personally payable in respect of a later disposal.
• Thus the retirement relief is effectively clawed back, but is payable by the child and not the disponer.

Stamp Duty

No stamp duty liability of disposal is of an inheritance.

Consanguinity relief on stamp duty of disposal taken by gift

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