Ltd company & Estate Planning

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1eyeonthefuture

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Before getting into the detail, a tax accountant will be engaged however on the scenario below am looking for some food for thought as much as anything.
Father is 70.
He is retired from a senior civil service position on a v generous pension.
He owns a farm from which he draws an income.
Not content with a quiet retirement, he set up a one man consultancy business a NR of years ago (Ltd company) which has been moderately successful with next to no overheads as he works from an office in the house.
He takes a wage and pays my mother a wage from this business.
Cars purchased by the business, jeep purchased by the farm.

In conversation he mentioned that he has approx 500k in the office account which will grow significantly in the coming years and he can't take anymore out of the business without the tax man getting a large donation for every euro.
He is not in need of any further income, he works because he enjoys it but is starting to worry about succession planning, tax liabilities should something happen etc..

He is planning to see a tax accountant however in advance would like to have an understanding of what others in such a situation do.... Invest in property, bring in other shareholders, etc.
He says he has no interest in investing in further pensions as he already has one that keeps him in an excellent lifestyle....
Ideally I think he would like to have a mechanism in place which would see his children, and particularly his grandchildren benefit without a major portion going to tax if it can at all be helped.

So over to you AAM.... If you were spit balling with him what avenues would you suggest he explore??

Thanks
 
Before getting into the detail, a tax accountant will be engaged however on the scenario below am looking for some food for thought as much as anything.
Father is 70.
He is retired from a senior civil service position on a v generous pension.
He owns a farm from which he draws an income.
Not content with a quiet retirement, he set up a one man consultancy business a NR of years ago (Ltd company) which has been moderately successful with next to no overheads as he works from an office in the house.
He takes a wage and pays my mother a wage from this business.
Cars purchased by the business, jeep purchased by the farm.

In conversation he mentioned that he has approx 500k in the office account which will grow significantly in the coming years and he can't take anymore out of the business without the tax man getting a large donation for every euro.
He is not in need of any further income, he works because he enjoys it but is starting to worry about succession planning, tax liabilities should something happen etc..

He is planning to see a tax accountant however in advance would like to have an understanding of what others in such a situation do.... Invest in property, bring in other shareholders, etc.
He says he has no interest in investing in further pensions as he already has one that keeps him in an excellent lifestyle....
Ideally I think he would like to have a mechanism in place which would see his children, and particularly his grandchildren benefit without a major portion going to tax if it can at all be helped.

So over to you AAM.... If you were spit balling with him what avenues would you suggest he explore??

Thanks
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Presumably an accountant advised him in writing to operate this business through a limited company.
Presumably an accountant advised him in writing to build up big cash reserves in the company.

You should go back to that accountant now and ask him -"What next?"

We will be very interested in hearing the answers.

Brendan
 
Brendan Burgess said:
How do you think his very generous civil service salary was paid and his very generous pension is being paid?
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Brendan, are you seriously questioning someone looking to reduce his tax liability where possible.? Do I take it from same that you dont claim any tax breaks, allowence etc.
Any advice been requested would fall within the tax laws.
But I appreciate your righteousness
 
You raise an interesting issue but there is something about the way you express it.

Your dad sees tax as a donation but I simply pointed out it's due to the donations of other people that he has such a generous salary.

And there is lots of tax planning advice on askaboutmoney. Personally, I don't like the idea of people setting up companies to reduce their tax liability. And it's not usually very effective.

Brendan
 
This is the question I have not got an answer to

1622967538386.png
If someone accumulates cash in a professional services company over a number of years, does it come under (i) or (III) above .

If not, it would make sense to retain the profits in cash rather than by shares or any other investments.

Brendan
 
Brendan Burgess said:
This is the question I have not got an answer to

View attachment 5622
If someone accumulates cash in a professional services company over a number of years, does it come under (i) or (III) above .

If not, it would make sense to retain the profits in cash rather than by shares or any other investments.

Brendan
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Hi Brendan,

The issue is that cash is not a chargeable asset at all. So if a company just has cash on its balance sheet, retirement relief doesn’t apply. That’s because the formula is “Chargeable Business Assets/Chargeable Assets x Gain” and “0/0” is a mathematical nonsense.

So a company with, say, €750k in cash needs to a acquire a single chargeable asset such as a laptop, so the calculation becomes, say, “€1,200/€1,200 x €750k” and then the €750k that comes out via the liquidation becomes tax-free.

The limit for a 70 year old is €500k so it sounds to me that the OP should liquidate the company and look to get the money out tax-free. After getting professional advice.

Gordon
 
Gordon Gekko said:
Hi Brendan,

The issue is that cash is not a chargeable asset at all. So if a company just has cash on its balance sheet, retirement relief doesn’t apply. That’s because the formula is “Chargeable Business Assets/Chargeable Assets x Gain” and “0/0” is a mathematical nonsense.

So a company with, say, €750k in cash needs to a acquire a single chargeable asset such as a laptop, so the calculation becomes, say, “€1,200/€1,200 x €750k” and then the €750k that comes out via the liquidation becomes tax-free.

The limit for a 70 year old is €500k so it sounds to me that the OP should liquidate the company and look to get the money out tax-free. After getting professional advice.

Gordon
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I'm not sure that's correct about cash, but you reference Retirement Relief rather than Entrepreneurs Relief, so maybe there are differences there. There's a good document here about Entrepreneur's Relief and liquidation.


2.4 Liquidations A question that is commonly asked is whether CGT Entrepreneur Relief can apply on a liquidation of a company and one which is not provided for in the relevant legislation. On tax first principles, a capital distribution received by a shareholder in respect of their shares on liquidation would not qualify for CGT Entrepreneur Relief, as a company is generally not trading, i.e. not operating as a “qualifying business” at the time at which it is dissolved by the liquidator and the distribution made. It can also be the case that even at the date a liquidator is appointed, a company is not carrying on any activity or has wound down its activities significantly. However, Revenue provided a limited concession in their CGT, Tax and Duty Manual at Part 19-06-02b (last updated in February 2018) which states the following: “Relief can apply on the liquidation of a company, provided the company was carrying on a qualifying business up to the time the liquidator was appointed and the liquidation was completed within a reasonable period of time.” Once a company liquidation is completed within two years1 from the appointment of the liquidator and the relevant company carried on a qualifying business up to the appointment of the liquidator, then relief should be available provided the other conditions for relief are satisfied and the company is still trading prior to the appointment of the liquidator. Finally, the concession would not apply to the liquidation of a holding company, as the holding company would not have carried on a qualifying business prior to the appointment of a liquidator.
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Entrepreneur Relief yields a tax rate of 10%. Retirement Relief yields a tax rate of zero. With €500k of value and a shareholder who’s over 66, RR is probably the way to go. But as an aside, liquidations are broadly okay for ER as you’ve indicated.
 
Gordon Gekko said:
Entrepreneur Relief yields a tax rate of 10%. Retirement Relief yields a tax rate of zero. With €500k of value and a shareholder who’s over 66, RR is probably the way to go. But as an aside, liquidations are broadly okay for ER as you’ve indicated.
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Thanks. One more thing for me to think about...
 
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