Buy out of my shares by company at retirement

1eyeonthefuture

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I hold a small portion (6%) of company shares, with balance owed by single other shareholder (MD).
Shareholder agreement provides for a method of valuation of my shares upon exit or retirement which I'm happy with and which company has to purchase.
The nrs aren't huge like some I see mentioned on this forum, expected circa €400k.
With this figure arrived at what are the typical methods of withdrawing the funds in as tax efficient manner as possible.
The relationship is excellent and the MD /company would do all to facilitate any tax efficient efforts etc.

Thanks
 
If you are looking for a tax efficient exit, a company buyback is definitely an option to consider.

This could provide you with capital gains tax treatment once all the conditions are met.

You do not want the proceeds from the buyback to be deemed a distribution by Revenue and subject to income tax, USC & PRSI.

I see that there has been a substantial increase in the value of your shareholding based on your posting in this thread in Sep 2019:


Does the increase in the shareholding represent a capital gain or were there share purchases in the interim?

If going down the company buyback route, it is very important that this document is reviewed:


There are very strict conditions to be met if CGT treatment is to be availed of and for the proceeds not to be deemed a distribution.

Key things to be aware of:

1. The company is a trading company; and
2. Shares have been owned by the vendor for 5 years prior to buyback; and
3. The buyback is for the company's benefit; and
4. The vendor is resident and ordinarily resident in Ireland in the year of the buyback; and
5. The vendor has severed ALL connections with the company - NO residual shareholding, NO directorships, NO employment etc. This also extends to your associates (i.e. family) I believe.

If ALL the above are met, you could qualify for CGT treatment on the disposal of your shares to the company.

Also, the company is deemed a third party for the purposes of the disposal and Entrepreneur Relief could apply, reducing the CGT rate from 33% to 10% on lifetime capital gains up to €1,000,000, providing:

1. The business is a qualifying business; and
2. At least 5% of the share capital has been owned for a continuous period of 3 years in the last 5 years prior to disposal; and
3. The individual has been a director or employee of a company required to spend 50%+ of their working time in a managerial / technical capacity in the company for a continuous period of 3 out of the 5 years immediately prior to the disposal of the chargeable assets.

You could also look into a severance payment from the company too. This could allow access to some tax free funds.

Don't forget your annual capital gains tax free exemption too of €1,270!

I see you have an Executive Pension Plan with New Ireland. Perhaps there is something to be looked at there as well that some of the pension experts on this forum could advise on.

Make sure you get good advice and employ a professional.
 
€400k is a very meaningful sum. It is vital that expert tax advice is obtained. As AAAContributor has rightly highlighted, it should be possible to get CGT treatment on the buyback, opening up the possibility of the Entrepreneur Relief. But there are pitfalls. The company’s own tax advisors should be all over this.
 
Just something else to keep in mind - this might be outside of your control. The MDs shareholding is worth over 6m. What's their exit strategy? I'm assuming you're a good few years away from retirement, so a lot could change in their plans between now and then.
 
That's fantastic, many thanks to all for all the effort in putting together such a detailed answer, it's very much appreciated.
AAA... The increase in the value of my shares is a direct result in the increase in the market value of the company. There has been no additional purchase on my part.
The point around severence pay, def something to look into, it's not something that entered my thinking.
Yes a professional will most def be brought in and while any move is a few years away I want to start thinking about it now in order to get any ducks in a row that I need to.
Thanks again, def lots of food for thought.
 
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