1. The benefits of proper succession planning

Marie emphasised succession planning is vital for maintaining business stability. A well-planned succession mitigates transition risk, preserving and even enhancing the perceived value of the business.

• Protection of long-term growth: By controlling what can be controlled, succession planning safeguards the business’s long-term growth, protecting employees, clients, and other stakeholders.
• Tax efficiency: Planning ahead allows businesses to meet conditions for key tax reliefs, ensuring that the existing owners can claim exemptions and wealth is retained without “leakage” through avoidable tax payments.
• Smooth transition and flexibility: The goal is a seamless handover, whether it’s to the next generation, a third-party sale, or a management buyout (MBO), while maximising flexibility in how the exit is structured (e.g., share sale vs. asset sale).

2. Structuring business exits & reorganisations in Ireland

1. Share Buybacks:
   
   • Mechanism: The company repurchases shares from an exiting shareholder (e.g., for retirement, dispute resolution).
   • Distributable Reserves: The company must have sufficient distributable reserves to pay for the shares at their independently valued price.
   • Tax Treatment: Crucially, it must qualify for CGT treatment (potentially enabling retirement/entrepreneur relief). If not, it’s treated as a distribution subject to higher income tax rates.
   • Conditions for CGT Treatment: Must be for the company’s trade (demonstrating company benefit, e.g., succession planning); exiting shareholder’s interest must reduce by at least 25%; no “connection” with the company after buyback (cannot own >30% share capital/voting power); shares owned for at least 5 years by exiting shareholder; must be for bona fide commercial reasons; departing shareholder must be Irish tax resident in the year of buyback.
   • Case Study Example: Marie illustrated how a family shareholding (e.g., father exiting, mother retaining 40%) could prevent CGT treatment due to the “association” rule (associate owning >30%), necessitating prior share realignment.
2. Share Sale vs. Asset Sale:
   
   • Share Sale (generally preferred by seller): Transfers the entire company (assets, liabilities, staff, IP). More tax-efficient for the seller (CGT on shares, potential for reliefs). Trading losses go with the company. Goodwill is inherent.
   • Asset Sale (often preferred by buyer): Allows buyer to pick and choose specific assets. Less tax-efficient for seller (company pays tax on asset sale, then shareholder pays tax on extraction). Higher stamp duty. Liabilities are not automatically transferred. Goodwill is a separate asset.
   • Driving factor: The “power” in the negotiation between buyer and seller often dictates the structure.
3. Use of Holding Companies:
   
   • Benefit: Allows for tax-free transfer of sale proceeds from a trading subsidiary to the holding company under the “participation exemption” (if conditions met, e.g., 5% ownership for 12 months in last 2 years, subsidiary is trading).
   • Best Use Case: Ideal when proceeds are intended for further investment through the holding company, avoiding higher income tax rates on personal extraction. Also allows for ring-fencing risk of new ventures.
   • Pre-Transfer Reorganisation: Julie stressed the importance of reorganising a holding company structure before succession, particularly if it holds non-core investment assets (like property or excess cash). Mixing trading and investment assets can skew ratios for retirement/business relief or lead to “excess cash” scrutiny by Revenue. Robust documentation is needed for why cash is held for business purposes. 

3. Transfers of Irish Family Businesses

It is always a delicate balance between family dynamics and business needs. Family Partnerships are an increasingly popular option for phased transfers.

• • • Mechanism: Allows parents to transfer beneficial ownership (future growth accrues to next generation at today’s value) while retaining voting power and control initially.
    • Importance of agreement: Requires a detailed partnership agreement outlining terms and contingencies (retirement, death, withdrawal of a partner).
    • Case study: Marie presented a scenario where a family investment partnership could be used to transfer wealth to children, allowing future growth to accrue to them while parents retain control, potentially facilitating further leveraged investments.

4. Mergers and Acquisitions (M&A) & Revenue Focus Areas:

Despite the current economic climate, M&A due diligence remains active. Julie Healy highlighted two key areas of Revenue focus during M&A and generally for businesses:

• Employees vs. Self-Employed Contractors: Following the Karshan Midlands Limited (Domino’s Pizza) Supreme Court case in 2023, Revenue released new guidance with a five-step decision-making process. Misclassification can lead to significant penalties (10-100% of underpaid payroll taxes).
  
  • Filter Questions: Is there a work-wage bargain (contract/payment)? Is personal service required (can they outsource)? Is there control (when, where, how work is done)?
  • Revenue Expectation: More individuals will likely be deemed employees under this framework. Businesses should review existing arrangements.
  • Corporate Structures: Revenue generally will not “look through” a company structure (e.g., a one-person company) to deem the individual an employee for tax purposes, though other legislation (employment law, social protection) may differ.
• Closed Company Provisions: These apply to closely held companies (controlled by 5 or fewer shareholders, or by directors).
  
  • Areas of Scrutiny:
    
    • Expenses for Shareholders/Associates: E.g., living accommodation.
    • Loans: Interest paid to directors (above limits) can be treated as a distribution (income tax for individual, no company deduction). Loans from the company to shareholders/associates can result in income tax liability.
    • Surcharges: 20% surcharge on undistributed rental/investment income. Closed service company surcharge for professional service companies (engineers, auctioneers, etc.) deriving principal income from professional services. Non-compliance is costly.

5. Looking Ahead: Potential Irish Tax reform 

Julie Healy concluded with a speculative look at the future of Irish taxation, particularly in light of the high concentration of corporate tax receipts from a few large companies.

• Auto Enrollment: While this scheme has been delayed, individuals managing standard fund thresholds (€2 million) need to be aware of the opt-out window (month 7 or 8) to avoid automatic pension contributions impacting their threshold.
• Potential Tax Reform (CGT and CAT):
  
  1. Concentrated Corporation Tax Risk: Ireland’s high reliance on corporation tax from a few companies presents a significant risk in a global downturn.
  2. Low CGT/CAT Contribution: CGT and CAT comprise only 3% of Ireland’s 2024 tax revenues (even with Apple money).
  3. UK precedent: The UK is curtailing its equivalent agricultural and business relief from April 2026 (50% relief for values over £1 million), which Ireland has historically looked to for policy inspiration.
  4. Commission on Taxation Report (2022): This report recommended curtailment of business relief and retirement relief. The 12-year clawback on Retirement Relief for large transfers is a partial fulfillment of these recommendations. Julie wouldn’t be surprised to see further curtailment of business relief (e.g., value limits, active participation requirements for beneficiaries).
  5. Principal Private Residence (PPR) Relief: The Commission also considered curtailing this full CGT exemption on the sale of a main residence, potentially through a lower CGT rate, to address its impact on the property market and generate tax revenue.

Given global economic uncertainty and the need for diversified tax revenues, Julie’s strong advice is for those considering a transfer to the next generation to do it sooner rather than later, even if partially. Some current reliefs may not exist in their current form in five years.