Tax efficient exits take time, so plan for change

For business owners considering change, long-term pension planning and strategic structuring is vital for a tax-efficient exit.

At our recent online conference, “Getting Back to Business – planning for greener pastures”, a common theme emerged of business owners re-evaluating their options for the future.

The pandemic and other pressures has made many Irish business owners consider stepping down, says Paul O’ Donovan, owner at Paul O’Donovan & Associates, who addressed the importance of strategic exit planning. “We have seen an uptick in people contacting us deciding to move on; to sell or retire.”

Why do businesses need succession planning?

“Planning structures and succession, and planning pensions, well in advance will allow you to exit a business in most tax efficient way. It’s very important to develop your strategies with your financial adviser, pension provider, accountant, key staff and family members.”

To run, and exit, a business in the most tax efficient way you need to plan years in advance, says Paul. “We have saved businesses hundreds of thousands in this area.”

Executive pension planning

“One of the most tax efficient ways of extracting money from your business from start to finish is through an executive pension scheme.”

An executive pension is a company pension plan set up by a Limited Company for the benefit of its company directors, owners and key employees. Both employers and employees can contribute to the plan and avail of tax relief on contributions paid by the company on their behalf.

Among its key benefits is that executive pensions are tax efficient and flexible, with a higher scope for contributions for directors of companies, offering a choice of funds and investments. It allows for retirement as early as age 50.

Company directors should arrange a review near the end of the financial year to check funding calculations. Is their pension funded at the maximum level and, and if not, is there cash available in the business to do so? Is that a good use of that cash? These calculations can also determine if directors can fund previously underfunded years of service as well as and ensuring obligations to employees are met.

Retirement, succession and selling – making a tax-efficient exit

Along with the maximum funding of pensions, plan ahead to make significant savings by reducing or eliminating Capital Gains Tax (CGT). You may be able to gain full relief on disposal by claiming Retirement Relief or reduce your 33% liability down to 10% by claiming Entrepreneur Relief.

For Retirement Relief, you must be 55 years or older on the date of disposal. You must be a working director for a minimum 10 years prior, and be deemed full-time for at least 5 of those. Disposal to child can allow full CGT relief on qualifying assets but comes with conditions that need to be considered years in advance to qualify.

It’s a common misconception, Paul says, that you can no longer be involved in the business. “You are not required to fully retire from your business to claim Retirement Relief – you are still allowed to be employed in the company afterwards”.

For those planning on exiting under 55 or in other conditions, there are also options. Entrepreneurial Relief works like Retirement Relief in reducing CGT to 10% on the gains from disposing of your business – but only when certain conditions are met. And if you decide to liquidate your company, as opposed to selling it, getting advice in advance can be the difference between qualifying for reliefs and a very hefty CGT bill.

Other considerations for succession planning include:

  1. Termination payments
  2. Advance planning and communication with key staff members
  3. Advance discussions with your potential successor and or family members
  4. Your succession timeline
  5. Your business valuation

Paul stressed that it’s never too early to consider your exit. “As soon as you start your own business, always be working towards an exit plan. Ensure you’ve planned for the most tax efficient way of extracting money from, and disposing, of your business.”

“Make sure that you’re getting the right advice – it leads to saving substantial sums of money. As Benjamin Franklin said – if you fail to plan, you are planning to fail.”

Want to know more? Watch the video recording of Paul‘s full presentation, below. Or you can watch the whole conference on our blog

Evaluating occupational pension schemes?

Paul O’Donovan and Associates advise and consult on company pensions, including offering employee information sessions. Our pension planning service makes things simple, finding the best solutions for your situation.

Call us today at 021 432 1799 or email

Expert advice on structuring and succession

We can provide objective specialist advice on succession, exits, mergers and acquisitionsWhatever stage in business you are at, we can show you how to resolve your issues and improve your opportunities. 

Contact Maurice at or call us on 021 432 1799.

1 thought on “Tax efficient exits take time, so plan for change”

  1. Pingback: Act now for tax-efficient exit: CGT reliefs and business succession - Paul O'Donovan & Associates

Leave a Reply