Finance Act 2012 provides for a number of changes which may be of relevance to those who are giving consideration to disposing of their business or passing this on to the next generation.
Relief may be available from CGT where certain conditions are met in the form of retirement relief. Under these provisions it is possible for an individual who is aged 55 or more to dispose of either shares in a family trading company or individual chargeable business assets in the case of an unincorporated business. There are a number of provisions which must be met relating to the period of use/ownership also. Historically the relief allowed an individual to dispose of such qualifying assets for consideration not exceeding €750,000 to third parties, with no CGT applying. Marginal Relief may be available where the consideration exceeded this amount. Where the disposal was made to their children there was no threshold applicable, so that the relief applied to the value of the shares or assets passed on in full.
Under the new provisions, which will apply to transfers made from 1 January 2014 onwards, this relief will be restricted in certain cases. Where the individual making the disposal is aged 66 or more, there is a new cap introduced for disposals to children, which will restrict the exemption to qualifying assets with a market value of up to €3 million, with no relief for amounts in excess of that. In the case of disposals to third parties the relevant threshold will be reduced to €500,000.
Changes have also been made to CAT effective from 7 December 2011. The CAT rate has increased to 30%, in line with the CGT rate, while the Group A threshold (applicable to transfers from parents to children) has decreased significantly to €250,000. In the context of these changes, both Agricultural Relief and Business Property Relief have become even more valuable. Both of these provide for a 90% reduction in the value of the gift or inheritance where certain conditions are met. Either relief may also be used in conjunction with CGT retirement relief where relevant.
The changes to the retirement relief provisions should focus the mind of those who are 66 already or will be after 2014. This may seem a long way off at this stage, however it is important that sufficient time be given to consider any transactions undertaken. This is in order that the transaction can be structured in the most favourable manner to avail of this relief and also any CAT reliefs which may be relevant. In addition to this, there may be commercial factors to consider which could outweigh any tax benefits, such as the debt position of the person to whom the business is being transferred (if this is given to a child).
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