Working with a lot of business owners, I see that a lot of their wealth is tied up in their business. It is therefore vital that they are able to build up as much values as they can in their business and then sell it in the most tax efficient manner. This week, we have a guest article from John Comerford, who is a tax partner at Cooney Carey
The legal structure for your business e.g. sole trader, single company, holding company or cross border group and the detail of how the structure is implemented and operated are key ingredients in achieving a tax efficient sale. This can be the difference between qualifying for a tax-exempt disposal or paying capital gains tax at 33%.
There are reliefs which reward entrepreneurs and business owners on sale of the business. These reliefs may eliminate tax on a sale or retirement or may provide for a significant reduction in the tax at exit.
The sale by a company of a qualifying trading subsidiary or company owned by a trading group may qualify for complete exemption from capital gains tax.
The sale of a qualifying business or shares in a family company may qualify for complete exemption from capital gains tax for disposals up to €750k per shareholder. In the case of a disposal to a child the exemption is uncapped up to age 66 (a €3M cap applies thereafter).
The sale of shares in a qualifying trading company or holding company may qualify for entrepreneur relief at the reduced 10% rate of capital gains tax for gains up to €1M.
There are qualifying conditions and tests that need to be met for the above reliefs to apply. These conditions may apply at a point in time or may need to be met throughout qualifying periods.
The time frame for meeting the conditions can be as short as 12 months in the case of S626B CGT relief, three years in the case of the reduced 10% rate of CGT for entrepreneur relief or as long as 10 years in the case of qualifying for exemption from CGT in the case of retirement relief.
It is important to consider which of these reliefs or which combination of these reliefs are appropriate to your exit within your strategic tax plan (by the way you need a strategic tax plan but that is another story).
Apart from the changes in tax legislation flowing from the annual Finance Acts which may make changes to these reliefs it is noteworthy that published Revenue practice in this area has been updated a number of times during 2017 and 2018. You should keep your tax structure and exit plans under review on an ongoing basis and if it has been some time since it was examined it is advisable consider if it is still fit for purpose.