Succession is not simply about who receives the shares. It is about preparing the business, the family and the owner for what comes next.
Start earlier than feels necessary
Succession planning is easier when there is time to consider alternatives. A business owner may ultimately transfer the company to children, sell to management, sell to a third party or retain an investment interest. Each route can require different preparation.
Family succession
Where a business is intended to remain within the family, ownership and management do not necessarily have to transfer at the same time. The next generation may need training, experience and gradually increasing responsibility. The ownership structure can also be considered alongside family relationships, governance and the owner’s need for financial security.
Capital Acquisitions Tax
Gifts and inheritances can create CAT exposure, subject to the relevant thresholds, exemptions and reliefs. Revenue’s current guidance explains that Business Relief can reduce the taxable value of qualifying business property by 90%, subject to detailed conditions. Revenue also states that CAT filing can be required where Business Relief is claimed even where the accumulated taxable benefits would otherwise be below the normal filing threshold.
Business Relief has conditions
Business Relief is not automatic. Revenue’s guidance includes conditions concerning the nature of the business and periods of ownership, and relief can be withdrawn in certain circumstances, including where relevant business property ceases to trade or is disposed of within specified periods.
CGT can also matter
The person transferring the business may have a CGT exposure even where the recipient has a CAT consideration. Retirement Relief and Revised Entrepreneur Relief may be relevant depending on the facts. Revenue’s current guidance has changed in recent years, so the rules should be checked for the year of the proposed transfer rather than relying on older advice.
The human side of succession
A successful succession plan is more than a tax calculation. It can involve family expectations, leadership, governance, funding, personal retirement needs and the preservation of relationships. Good planning gives the owner and the next generation time to discuss those issues openly.
Practical takeaway
Tax advice is most useful when it is connected to the decision the client is actually trying to make. The detail will vary from one business or family to another, but the principle is consistent: understand the objective, identify the relevant rules and consider the consequences before the decision becomes irreversible.
Property and family wealth
For many business owners, property forms part of the wealth they intend to preserve or pass to the next generation. Property may be connected to the trading business, held as an investment or owned separately. Succession planning should therefore consider the relationship between business interests, property assets and the wider family wealth position rather than treating each asset in isolation.
Official references: Revenue and the Revenue guidance referenced within this article.