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Succession Planning:“Succession planning?is a process for identifying and developing new?leaders often within a family?who can replace old leaders when they leave,?retire?or die. Succession planning increases the availability of experienced and capable employees that are prepared to assume these roles as they become available.”So why does your business need a succession plan? Think about why you set your business up in the first place, most likely it was with the intention that your business would not only succeed but have longevity. You may have considered how its success could impact future generations.It is therefore logical to want to ensure that when the time comes for you to exit your business that you have in place a structure which will ensure your business continues to thrive long after your retirement. You may also want to take something from your business to allow you to enjoy your retirement.The first step of this process is to identify a suitably skilled candidate to take over your role, following your departure from the business. Time needs to be allowed for upskilling and the transfer of essential knowledge from one generation to the next. For this reason the sooner a succession plan is put in place, the more time that is available to work on these areas.Steps for transferring ownership of your business:● Seek financial advice. Discuss pension options and tax free payments● Make a Will. Discuss tax relief options and tax implications with your accountant. Make a plan.● Look at what assets you have or are likely to have at time of death.● Identify and prepare your successor. Ensure they have a good understanding of where you want your business to go in the future, how you would like it run.Remember to ensure your plan incorporates any unexpected occurrences, such as sudden death or disability/long term illness.Important Considerations:The preparation of a will is an integral part of any Succession plan, this allows you to consider how your assets will be passed on to family members during or after your lifetime. You will want to ensure that:● Assets pass in the most tax-efficient manner possible.● All available tax reliefs are utilised.● Tax charges, if they cannot be eliminated, are assessed to see if it is best to pay them now or in the future. Look at who would be liable to pay these charges.As changes are regularly made to Taxation legislation we would recommend that you review your succession plan with your accountant on a regular basis.Taxation & Your Business:Taxes:Transferring assets can give rise to:Capital Gains Tax (CGT) which applies to the person disposing of an asset (including a transfer by way of gift)Capital Acquisitions Tax (CAT) which applies to a person receiving an asset by way of gift or inheritanceStamp duty, applicable when you transfer ownership of property and certain assets, payable by acquirer or purchaser of business.There are several tax reliefs available, outlined below, that are designed to minimise tax payable on the transfer of your business to your successor.In the case of business transfers, areas such as pension planning and tax-efficient extraction of funds by a retiring shareholder can also be important.Note there is no CGT payable on death.Capital Gains Tax(CGT)- Retirement Relief:The sale or transfer of a business during your lifetime can result in a costly Capital Gains Tax (CGT) liability for you. A relief known as retirement relief may be available when looking at the CGT implications on a transfer or gift.Retirement relief provides relief to individuals on the sale or transfer of certain business assets (including agricultural assets), provided certain conditions are met, one of these conditions is that you must be 55 or over, however you do not actually have to retire. -If the transfer of business assets occurs between the ages of 55 and 65 to a family member, there is no cap on the value of the business assets. Where the transfer is made after you turn 66 years there is a threshold of €3 million.The following reliefs are available:Retirement Relief: can provide for a full exemption from CGT on the disposal of certain family businesses or farms. Double this relief as for husband and wife.Entrepreneur Relief : This relief provides for a reduced 10% rate of CGT on the first €1m of gains on the disposal of certain business assets. Conditions are less stringent than with retirement relief.Note: Retirement and Entrepreneur Relief are applied together so it needs to be assessed as to which is most beneficial to the party in question.-The following CGT limits apply:Age At TransferLimit55-66€750,000 proceeds66 or over€500,00 proceedsNote: If cash is needed from the business by the individual exiting the business a share buyback may be done.Capital Acquisitions Tax(CAT):Transfers of business assets by way of a gift or inheritance may result in a Capital Acquisition Tax (CAT) liability for the individual receiving the gift or inheritance, however there are certain reliefs available.These include the following:. Business Property Relief: If the gift or inheritance consists of certain business assets (including certain shares in family companies) the market value of the business assets can be reduced by 90% if certain conditions are met. This can therefore facilitate the transfer of a family business to the next generation. Agricultural Relief: If the gift or inheritance consists of agricultural property (e.g. farm land) the market value of the gift or inheritance can be reduced by 90% if certain conditions are met. This is a valuable relief which in certain circumstances can provide for the transfer of farm land and farming property between generations, without incurring a large CAT bill. A gift or inheritance of cash where the cash is used to purchase agricultural land within two years of the date of the gift or inheritance could qualify for agricultural relief if conditions are met.Annual Gifting Relief: If you wish to gift an annual amount to your children or grandchildren, there is a small gift exemption of €3,000 that any individual can receive per calendar year free of gift tax.For example a set of grandparents could both choose to gift up to €3,000 to each of their children and/or grandchildren.Other: Note that inter-spouse transfers are non taxable To calculate CAT you need to know which threshold, tax rate and aggregation rules apply to a gift or inheritance. You also need to know two important dates:the date of the gift or inheritancethe?valuation date.Lifetime Thresholds:Currently the tax rate for CAT is 33% in respect of gifts or inheritances. However, there is a lifetime threshold amount that an individual can be gifted or can inherit tax free. This is determined by the relationship between you and the person receiving the gift or inheritance.GroupRelationship To DisponerThreshold AmountASon or Daughter€320,000BParent*/ Brother/ Sister/Niece/Nephew/Granchild€32,500CRelationship other than group A or B.€16,250*In certain circumstances a parent taking an inheritance from a child can qualify for Group A threshold.Rules & conditions apply & clawbacks will applyRate:The standard rate of CAT for gifts and inheritances received on or after 6 December 2012 is 33%. For a list of past rates, see the Current CAT rates (post 6 December 2012) and Historic CAT rates in this section.Aggregation Rules:You pay CAT on the total of all the gifts or inheritances that you have received throughout your lifetime. The rules for how you add them are the aggregation rules. Should you wish to discuss any of the topics highlighted in this article please do not hesitate to contact DBASS on 01- 849 88 00 were a member of our team will be delighted to assist you. ................
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