As a business owner, you have to pay your taxes, right …
In fact Revenue has a whole web site designed to assist you to hand over your 'hard earned cash to the government. This can, of course, be very painful, when you've sweated blood and tears, over years and years to earn your money.
Of course, I'm not suggesting you evade paying your taxes. That would be illegal! But, you can be sure … you're not helpless!
You can make solid financial decisions on how to take money out of your business and your pension, and I'm going to show you 4 ways to take more Euros out, keep more for yourself and your family and pay less tax to the government … legally.
1. Sell your business for up to €750,000 without paying any Capital Gains Tax.
Shares in a private limited company are chargeable assets for Capital Gains Tax (CGT) purposes and as such CGT will apply to any gain made. The current rate of CGT in Ireland is 33%.
That being said, current Irish tax legislation, subject to certain conditions, allows you to dispose of shares in your family business, valued at up to €750,000, tax free(As long as your birth certificate shows you were born before 1959).
You can also dispose of or gift your house to your children and get retirement relief on the full value of the property. However, Finance Act 2012 introduced a limit of €3,000,000 for individuals who reach the age of 66 and transfer assets on or after 1st January 2014.
That being said, it is important to ensure the relief is available and correctly applied to each individual circumstance. With this in mind, I would advise that you seek professional advice from a qualified tax consultant to allow you to best avail of all potential reliefs currently available to you.
2. Plan ahead to save your spouse or your children from a big tax bill.
You've probably heard about Inheritance tax - it's a tax on your house and all other assets your children may receive from you when you pass away. Your children are entitled to inherit a certain amount without any tax being payable, but above this figure inheritance tax must be paid on the full market value of what they receive.
The amount of inheritance tax payable largely depends on whether you plan to leave your assets to your spouse, your children or someone else, and the type of assets being left. For example, a spouse can inherit all assets from you tax free. Your son or daughter may inherit up to €225,000 tax free but will have to pay inheritance tax of 33% of any figure over this threshold.
There are certain other reliefs and exemptions relating to Dwelling House Relief, Agricultural Relief and Business Relief.
Strict time periods under which inheritance tax becomes payable can create a strain on your spouse or children's ability to pay this tax as in many cases they may have to sell part of the assets inherited in order to pay the tax. In the current market, disposing of such assets may be difficult. Your spouse or children may even need to get a loan in order to cover the tax liability, pending the sale of some of the assets. Again, securing a loan in the current environment can be quite a difficult task.
For example:
You pass away leaving your assets to a single son or daughter, who has not lived in your family home for 10 years and intends selling it. The value of the assets is as follows:
Family Home worth €350,000
Holiday Home worth €200,000
Contents of the Homes €25,000
Car €5,000
Money on Deposit €10,000
Total Value €590,000
Your son or daughter can inherit the first €225,000 tax free. The balance €365,000 (€590,000 – €225,000) is liable for inheritance tax at 33%. The total tax liability is then €120,450.
Your son or daughter in this simple example will have to pay a tax liability of €120,450. As most of the assets received are tied up in the family home, your son or daughter would have to cover a substantial portion of the liability from their own cash savings or possibly seek to take out a loan to cover the liability.
So, how can inheritance planning help?
A life insurance policy (Section 72 Policy) can be set up under trust for your beneficiaries. Such a policy will provide for a lump sum on death to your beneficiaries which can then be used to pay the tax liability. Provided the proceeds of the life policy are used to pay the tax liability, the proceeds of this life policy are not taxable when received by the beneficiary.
The ability to leave an inheritance to a family member is a wonderful gesture and one that would no doubt never be forgotten by those in receipt of it. The issues that arise for the person in receipt of such an inheritance can be complicated by the possible tax liability that comes with such a gesture. However, with some sound financial planning and advice, the issue of inheritance tax can be greatly relieved.