Lump sum payment from ex-employer.

Hi there,

My Mrs. was approached by a UK based company (family run business) about 5 years ago with a view to them starting a new company in Ireland. She was employee #1 and was simply left to her own devices to get the company up and running.

Roll on 5 years and she has 550 employees a turn over north of €2.5m/month.

The UK company were then offered €10m for the Irish company and turned it down. That offer was increased and they sold the company. As part of the deal my Mrs was to stay on and run the company for the new owners. All the staff were transferred to the new employer last December but my Mrs was made a director and transferred to a holding company (also in December).

Anyway, now that everything has been finalised, as a thank you from the old employers, they have told her they now want to give her €250k, which would come from their UK based holding company (which she's never been an employee of).

What are the tax implications? Pension is not an option as we're looking to move house. Could she get away with gift tax or would it have to go PAYE?

Really - a gift?

No, this is income and taxed as such. I can't imagine a company turning over € 30m per annum had no legal or accounting advisors

Did she not get professional advice when she sold the company, although it is not clear what actually happened - you say "she" setup and ran the company but "they" sold it?

That's one for a tax expert and the phrase you want to use is to "minimise" the tax liability.

There "may" be a route via a redundancy payment as she could be classified as being made redundant.

But one for face to face expert and do not use the phrase "get away with" - look at RTE for an example of going that route LOL

jpd said:

Really - a gift?

No, this is income and taxed as such. I can't imagine a company turning over € 30m per annum had no legal or accounting advisors

Did she not get professional advice when she sold the company, although it is not clear what actually happened - you say "she" setup and ran the company but "they" sold it?

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I'm guessing it a case of they own the company, "she" was the head of the Irish operation and took it from newly formed to 30m t/o and as the directors got a good payday, they wish to pay an ex-gratia amount of €250,000 as a thank-you.

If the payment is from the company, and the end of employment was very recent, I'd look at if a redundancy scenario could be made as the op's wife did not transfer to the new operating company.

jpd said:

Really - a gift?

No, this is income and taxed as such. I can't imagine a company turning over € 30m per annum had no legal or accounting advisors

Did she not get professional advice when she sold the company, although it is not clear what actually happened - you say "she" setup and ran the company but "they" sold it?

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A gift yes, that's what it is. She stopped working for them 6 months ago. This is a payment out of the blue that has come as a very pleasant shock.
She didn't sell the company, it wasn't hers to sell. In fact, it was very much against her wishes that the company be sold, though the new company have more than doubled her salary and have offered her a HUGE 5 year deal to keep her there.

peemac said:

I'm guessing it a case of they own the company, "she" was the head of the Irish operation and took it from newly formed to 30m t/o and as the directors got a good payday, they wish to pay an ex-gratia amount of €250,000 as a thank-you.

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Exactly. She doesn't know what the final figure was but thinks around €15m.

I believe it's too late to use the redundancy route now. I just thought, maybe, as the payment is coming from a UK company that she's never worked for, and it not 'income', in my eyes anyway, that she might be liable for 33% tax rather than full PAYE.

We'll go see an expert. Thanks for your response Peemac.

I'd be near certain it would be the gift tax of 33% as it was not promised as part of her earnings and not an expected payment.

A call or email to revenue themselves is another option

Originally I thought you were looking to pay near zero . On every angle this is a gift and the 33% rate would apply

peemac said:

A call or email to revenue themselves is another option

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Not a good idea. They're literally liable to tell you anything and will disclaim their own advice if and whenever it suits them.

T McGibney said:

Not a good idea. They're literally liable to tell you anything and will disclaim their own advice if and whenever it suits them.

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If that is the case - and I'm not doubting it - that's a bigger scandal than RTE - the idea that you can seek guidance from the tax authorities, follow that guidance and then for the same tax authorities to behave as if the guidance wasn't given.

JimmyB99 said:

If that is the case - and I'm not doubting it - that's a bigger scandal than RTE - the idea that you can seek guidance from the tax authorities, follow that guidance and then for the same tax authorities to behave as if the guidance wasn't given.

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Not really. They're in the tax collection business, not the advice business.

I disagree. If a citizen seeks guidance and they provide guidance, then it's not good enuff for them to ignore their own guidance. Completely different if they advise you to get advice. I won't be commenting further.

JimmyB99 said:

I disagree. If a citizen seeks guidance and they provide guidance, then it's not good enuff for them to ignore their own guidance. Completely different if they advise you to get advice. I won't be commenting further.

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They don't even really give guidance - just info.
And sometimes the wrong or inappropriate info.
Especially if the customer asks the wrong questions.
Not much you can do about it other than to get independent, professional advice/opinion.