Warning tax rules create risks in handover of family firms
Tax rules that hit the transfer of family businesses are putting firms and jobs at risk and should be changed in the next Budget, according to a new report.
Current rules effectively limit owners passing on healthy business while they are still alive, according to a pre-budget submission from tax and advisory firm PwC
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The firm, which undertook a study with Dublin City University National Centre for Family Business and the Family Business Network, called for changes to expand the scope and value of tax exemptions set against capital gains and capital acquisitions taxes.
"Anomalies" in the current regime could result in "higher than expected tax costs", PwC warned. "This could potentially put the business at risk in some cases and, at the very least, can also discourage in many cases business owners from making lifetime transfers," it said.
It urged the removal of a current cap of €3m on the value of business assets which can benefit from Retirement Relief when the owner is aged 66 years or more.
It also called for an increased threshold for the capital gains that qualify for a reduced 10pc rate under Entrepreneurial Relief - rather than the full 33pc. In the UK the first £10m of gains attract relief when a business owner sells compared to the first €1m here.
The Government is seeking submissions on changes to the entrepreneur relief scheme in a consultation that closes on May 24.
The Department of Finance will then hold a consultation event on taxation breaks for small and medium enterprises on June 6. Finance Minister Paschal Donohoe has referred to the desirability for some changes, again referencing the situation in the UK.
"It has been suggested by a number of stakeholders that amendments be made to the revised entrepreneur relief, including, but not limited to, increasing the lifetime limit of the entrepreneur relief and removing restrictions on those who may qualify," the Department's comments on the consultation said.
The PwC paper also called for more lenient treatment of cash on the books of businesses which allows relief only against funds that are immediately needed for the business and subjects the remainder to the Capital Acquisitions Tax.
In addition to improving the allowances for the transfer of family businesses, the submission said that tax relief available from the sale of a business to either family or the firm's management could mean the application of income tax rates of 55pc.
This could be overcome by a "bona fide" test for the commercial transaction that would allow capital gains taxes on transactions that were aimed at a path to business transition.
Tax relief for stakes held by employees should also be extended, again citing an example from the UK of the employee ownership trust scheme.
Wealth transfers have come under greater scrutiny recently due to worsening income inequality and a study by Credit Suisse said 133,000 people here were worth more than $1m (€892,000) in a country where the median wealth per adult was $72,473 (€64,631).