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GENERAL
This is service that we frequently advise upon.
Estate planning often involves the disposal of business and other assets to family members. Usually there are capital gains tax and capital acquisition tax issues.
With careful planning and foresight these taxes can be substantially reduced or possibly eliminated.
Because of the dramatic fall in asset values caused by the current financial and economic crisis there has never been a better time in recent years to transfer assets particularly business assets to children or other relatives.
Estate planning is best understood by a number of examples. These examples and solutions have been technically simplified for illustrative purposes. It may be assumed that furher detailed conditions would likely apply.
RETIREMENT RELIEF i.e . Exemption from cgt on disposal of business.
In Feb 2011 Joe has been in business as a sole trader insurance broker for 20 years. He is aged 53. He started the business from scratch.
He has one son Patrick aged 25 involved in the business and he would like to gift the business assets to him.
The business has no significant assets other a small office bought exactly 8 years ago and now valued at €200,000. The goodwill is valued at €500,000.
SOLUTION
If Joe gifts the business now then he will have cgt of 25% on all of the goodwill transferred.This will amount to €125,000. In addition cgt will also be payable on €200,000 value of the office less its cost 8 years ago.
His son Patrick will likely have no capital acquisitions tax to pay as he will be able to avail of business relief.
Assuming the circumstances don't change Joe can probably eliminate his cgt liability if he waits two years. This is for 2 reasons. Firstly to avail of retirement relief he must be aged 55. Secondly business assets disposed of must be held for a minimum of 10 years. Therefore to have the office included in the relief he must wait a full two years anyway.
To avail of this relief the maximum amount of the consideration that can be transferred is €750,000.
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