Reforming Agricultural Relief and Business Relief from CAT

[Brendan Burgess]

What happens if the business sells some assets in the meantime?
Machinery or vehicles for example?

In most cases, if it's a €2m+ business, it will be a limited company. The value won't change if they sell a vehicle. They will get the receipts for it.

What usually happens in many family businesses is that they eventually close down and the owners rent out the vacated property to a third party. It wouldn't be good if the CAT system were to encourage business people to do this unnecessarily.

OK, the objection everyone seems to have is that any smell of CAT and businesses will close down all over the place. If a business ceases to trade and is worth nothing then no CAT is payable. If a business ceases to trade but still owns a premises which it lets out it would be subject to CAT the same way that the inheritance of any investment property would be.

What happens a deferred CAT liability if a business closes down and the owners form a new company and start a similar but slightly different business?

If it closes down while still owning assets, then it's subject to CAT.

 

[T McGibney]

If it closes down while still owning assets, then it's subject to CAT.

How would that work Brendan? Every failed company has assets of some sort, but a failure means normally that the money has literally run out. Who would pay the CAT in such a scenario, and how?

 

[Gordon Gekko]

Hi Brendan.

It seems to me that your concerns could be dealt with quite simply by looking at the amount of time the person has to retain the assets for.

It’s currently 6 years. I don’t think it should be forever. How about making it 10 years? Or 12?

Gordon

 

[Brendan Burgess]

It seems to me that your concerns could be dealt with quite simply by looking at the amount of time the person has to retain the assets for.

Mandlebrot has suggested that as well.

It is very generous that the reliefs as currently formulated allow for a sale after 6 years without any clawback. I think a relatively simple fix would be to pick a longer clawback period with the clawback tapering off over that period. So, say for example there's a full clawback on a disposal within 5 years, and then it tapers off by 20% over each of the following 5 years (or 10% over each of the following ten years), so you have to hold for say 10 or 15 years to get the full benefit of the relief.

That would be better than the current system. But even 10 years is short time horizon to hold onto assets and pay nothing.

 

[Gordon Gekko]

We could make it 15 then? I just don’t think ad infinitum is fair. Maybe 6 is too short.

 

[Purple]

We could make it 15 then? I just don’t think ad infinitum is fair. Maybe 6 is too short.

A family business will, as the name suggests, have a number of generations working in the business. If a child has been working in it since they left college they would probably be in their late 50s or 60s when their parents die.

After 30 years plus of working there they then inherit it. They then have to keep the business until they are in their 70s before they can sell it. Seems harsh. Even more harsh if it’s a family farm.

 

[torblednam]

A family business will, as the name suggests, have a number of generations working in the business. If a child has been working in it since they left college they would probably be in their late 50s or 60s when their parents die.

After 30 years plus of working there they then inherit it. They then have to keep the business until they are in their 70s before they can sell it. Seems harsh. Even more harsh if it’s a family farm.

If they want to sell it, they can, they'll just pay some or all of the CAT that they didn't have to pay when they inherited the business / farm initially.

If I took over a family business tomorrow (availing of CAT relief), which I'd spent my career working in, and I later decided I'd had enough and wanted to sell it and retire, the fact that I'd "only" get to keep the majority of the proceeds would not be a major impediment to me cashing in my chips, if that's what I wanted to do.

There's also time to load up on pension contributions and any other planning points, to feather the nest too, in the meantime. People that own valuable SME's and farms, are not going to go to the wall in their droves, or suffer genuine hardship simply because of a longer clawback period on their very valuable relief.

You've specifically referred to selling the farm/business, but you might also have meant gift / will it onwards - it would make sense that if the business/farm is passed on by gift/inheritance to another qualifying person during the clawback period, then the person passing it on (or their estate) wouldn't suffer any clawback. That's because the new owner has now got the clawback clock ticking for their relief on the same asset(s).