Inheritance tax is a nonsense. Why should tax be charged on an asset just because a person dies.
Its origins in feudal law probably spring from the fact that the heir was vulnerable at the time of inheritance and needed the Kings support to succeed, so the King took advantage to extract a cut. We should be past this.
Any asset property or business should be taxed appropriately annually. A meaningful property tax each year and no sudden extra tax on he death of the owner. Similarly a business should pay tax appropriately each year and not be subject to a sudden one-off tax on death.
Tying yourself in knots to propose a better way of levying a tax which is inherently ridiculous is a waste of time.
If there was a meaningful wealth tax, which accrued with interest and was paid from their estate upon their death if the person didn't have income to pay it, then there is an argument for no inheritance tax.Ah yes, the tax system should definitely be set up to facilitate the unfettered transfer of wealth intergenerationally. That won't have any negative consequences for society at all.
If sonny has worked in the business for more than 5 years and will continue to do so, then the current Part 12 Business Relief should apply. Family members who do not work in the business should not get any relief. In other words the same rules should apply for family members that apply for non-family members (Section 12.5.2.2 of this).Hi Purple
Most businesses are profitable in that they generate a profit in excess of market salaries paid to the owners. If they weren't, it would make sense for the owners to sell the assets, close the business and get a salary elsewhere.
A business is usually valued on the basis of a multiple of its profits. But the break-up basis may be higher.
Most business owners I know have taken profits from their companies on top of their salaries.
And I know other businesses which have substantial property which would be better off if they rented it out.
So if Daddy gives Sonny a business in a warehouse worth €3m, are you saying that there should be no CAT on it? He can sell it after 6 years for €3m and pay nothing?
It seems wrong to me.
Brendan
Three ways to make a good return.As someone who lives in a rural area I'm amazed how any farmer purchasing land today can manage to make a return on the cost of land.. The only way I believe that this is possible at all is that they are taking a very long investment perspective.. Generational and not just the next one..
Then most businesses would be sold after each generation to pay the tax.That is where we disagree.
I don't see why someone working in a business should be able to get a €3m gift free of tax.
Brendan
If you own a farm and cannot make a profit which represents a reasonable return on the value of the land and your work, you should sell it otherwise you are just hoarding land an depriving society of its potential contribution.Farming is a problematic business for most forms of taxation.
No one would go into farming as a business. I wouldn't pay €14,000 an acre for 100 acres in County Kildare. Stock it up and employ a farm manager to run it.
So based on a multiple of profits, it's probably worth nothing.
If I inherit a farm worth €1.4m I don't think I should get it free of CAT. Maybe defer the CAT indefinitely. When I sell it, I pay 33% of it in CAT. If I pass it on to my son, he pays no CAT until he sells it.
Brendan
It would be interesting to see how many 'real' businesses (excluding farms) are passed down a generation these days and how many are just tax planning structures. Transfers of 'real' businesses don't seem at all common any more. I'd be keen for this exemption to be restructured.Then most businesses would be sold after each generation to pay the tax.
Good point.It would be interesting to see how many 'real' businesses (excluding farms) are passed down a generation these days and how many are just tax planning structures. Transfers of 'real' businesses don't seem at all common any more. I'd be keen for this exemption to be restructured.
Really?Having said that even basic estate planning would have you put the shares of any business you setup directly in your children's names from day one to side-step CAT entirely.
Having said that even basic estate planning would have you put the shares of any business you setup directly in your children's names from day one to side-step CAT entirely.
I’m not saying most businesses are setup this way of course, but in my experience it is quite common.Most people setting up a business do so to earn a living for themselves. They are not thinking of their children. Even if they were thinking of their children, they would want to retain control of the business themselves, so they should not let the CAT wag the dog. They might not have children when they are setting up their business.
This is only true (more accurately half-true) in theory Brendan. In practice it's massively risky. You'll end up not only tying up a large capital sum in an illiquid asset, but also running a complicated going concern business (with its own working capital requirements), for all of 11 years, just to save CAT.So I could buy a building with a coffee shop in it. Employ someone to run it. Gift it to my son after 5 years. He can sell it after 6 years. No CAT.
Hi BrendanIs it the coffee shop and property combination which is risky or the whole idea?
I suspect it's rare enough. Maybe some do in specific sectors where they already have industry expertise , but I'd guess that almost every long-term plan like this turns out to be impractical.Do people acquire or set up businesses as part of Estate Planning or is it just impractical because of the long-term nature of it.
You could in theory, but it would be far less risky and better for everyone to let him live his own life and make his own successes and mistakes. Nobody who wants to go into business in their own right would relish being stuck under a parent's thumb and subject to their whims for another 5 years. And a lot can happen in 5 years.But if I had a son who wanted to set up a business. I could buy an existing business and hire him to work in it, and give it to him after 5 years.
The issue is that farms attract EU and national subsidies of around €1.5 billion a year. They are to a large extent area-based payments, so once you can show that you have X hectares being farmed you get a direct payment. Non-dairy cattle farming is not very labour intensive and you can combine it quite easily with other work (dairy and tillage less so).A business is usually valued on the basis of a multiple of its profits. But the break-up basis may be higher.
Massive generalisations here, too many to list individually.The issue is that farms attract EU and national subsidies of around €1.5 billion a year. They are to a large extent area-based payments, so once you can show that you have X hectares being farmed you get a direct payment. Non-dairy cattle farming is not very labour intensive and you can combine it quite easily with other work (dairy and tillage less so).
By now the majority of farms in Ireland are part time and in effect it is a very well subsidised hobby. You can look at CSO agricultural accounts. Farm output less non-labour inputs (net value added at basic prices) is in most years less than the income from subsidies. When you take out paid help farmers make about twice as much in subsidies as they do in profits on their farm activity.
In many ways farming is more passive than active income. The land is doing more work than the farmer is, mainly by attracting subsidies. If the subsidies disappeared a lot of land values outside dairy areas would collapse.
I can see a case for lower inheritance taxes on large, intensive farms that are essentially family businesses and worked intensively. For the hobbyists out there - and there are many - the inheritance tax regime is way too low.
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