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Tax Bites - Planning Strategies

Submitted by bdoieadmin on Tue, 2010-11-16 17:48

Realising shareholder value

For shareholders that have worked hard on building the value in their business when an opportunity arises for them to obtain a return on their investment it is essential that it is structured tax efficiently. This may mean realising the value at the capital gains tax rate. Examples of where this can occur include:

  • The rearrangement of share ownerships giving rise to a disposal liable at capital gains tax
  • Sales/Purchase of companies
  • Opportunities to make return more tax efficient through use of pension planning, ex gratia payments etc.
  • Forming a holding company to acquire shares of a company for bona fide commercial reasons
  • Reorganisation of business out of existing company and leaving company to be liquidated
  • Sale by shareholders and not by company of target business owned by a company
  • Forming a holding company and issuing shares at market value. Holding company buys shares back.

Protecting shareholder value

In the current economic environment it is very important that business owners ensure as far as possible that they protect the assets from possible threats. This includes ensuring the any tax liabilities are reduced or at least deferred on income and gains of the company. Examples of planning opportunities include:

  • Transferring target trade to new subsidiary and selling subsidiary at a later date tax free through holding company regime.
  • Transferring business to sister company on a tax free basis to protect it
  • Forming a group or merging of 2 activities by way of share for share swap
  • Patent structures
    • Opportunity to maximise return on processes that have patent protection
    • Can produce tax free dividends for company and shareholders depending on circumstances.
  • Non filing structures – Reorganise shareholding in order to impose confidentiality on commercially sensitive information.

Employee equity participation

In order for a business to succeed, it is very important that key employees are incentivised. Equity participation is useful tool in order to help in this process.

  • Consider issuing shares to key employees at low valuations due to economic position.
  • Use share scheme which cap value of business today.

Reducing income liable to income tax, PRSI and levies

With high income earned by individuals now liable to substantial tax and levies exceeding 50%, taxpayers need to investigate what can be done to reduce this substantial cost. Some strategies that can be used include:

  • Change in accounting periods.
    In commencement situations this can produce drop out of profits.
    Where profits have fallen in the last year, a change in accounting period could result in fall out of profits liable to tax.
  • Transfer business to company.
    Consider transfer of a business to a company to avoid high personal tax and PRSI/Levies.
    Gives access to substantial pension benefits.
    Use opportunity of obtaining low valuation of business to limit stamp duty.
  • Individuals obliged to trade personally.
    Consider transfer to company of parts of business not requiring individual service.
    Pay salary to spouse for services and provide pension benefits to maximise tax deduction.

Retirement planning

With the reduction in the value of all asset classes over the last 2 years or so, it is fundamental that any tax arising on providing for retirement are minimised.

  • Use pension planning to maximise retirement provisions and provide tax free lump sum.
  • Consider pensions as wealth generator and preserver.
  • Consider disposal of shares in family company to obtain cash at capital gains tax rate.

Residential land ownership

Unwinding residential land personal ownership is an issue for development land owners due to the high level of personal taxes that would arise on any future profits.

  • Potentially transfer sites to company in total or piecemeal.
  • Cease the business and claim terminal loss relief.

Crystallisation of capital losses

Individuals that own assets that have fallen in value substantially should consider realising those losses so that they may be offset against any gains that may be chargeable gains.

  • Consider realising losses and reinvesting in shares to cover potential gains or carry forward future losses.
  • Capital distributions from companies in liquidation which are liable to capital gains tax may be covered by other losses.
  • Consider negligible loss claims for assets in particular shares that are now worthless.

Succession

Owners of family businesses that are considering the succession of the business should consider putting a structured plan in place for the transfer of ownership and providing for retirement.

  • Unprecedented opportunity to pass value to next generation due to low valuations of assets in particular property.
  • Retirement relief and business asset relief available which allow business to be transferred tax free.
  • Transfer assets early to maximise reliefs while available. If held for more than 6 years (10 years for Development land), a claw back is avoided and asset value uplifted for tax purposes in relation any subsequent sale.
  • Other reliefs available on succession, for example dwelling house exemption.
  • Utilise the €750,000 tax free amount for disposal to non family members.

Corporation tax savings/refunds

There are substantial benefits available to companies that plan for corporation tax liabilities.

  • Research and development credit.
    Substantial gross deduction of 37.5 % of incremental costs available.
    For 2009 accounting period possibility of refund of tax.
  • Capital allowances
    Plant capital allowances available to landlords and owner occupiers.
    All company premises have an element of plant.
    Allowance available on purchased and internally generated intellectual property.
  • Plan for future tax liabilities of company in particular rental companies and plan for tax shelters.


    • Talk to us, contact a member of our Tax team.