Cork 2023: Keeping track of your tax affairs

Andrew Guerin & Associates is a firm of certified public accountants and chartered tax advisers, operating for over 20 years and based in Cork City. We provide the usual range of professional services, with a particular emphasis on taxation.

The practice has many successful businesses and deals on its books with many high-net-worth individuals, family businesses and corporates.

The firm advises businesses and individuals locally, nationally and overseas in areas such as inheritance tax, succession planning, remuneration packages, and tax-efficient pension funding.

Taxpayers and businesses need to be more proactive and seek advice in advance of executing business transactions, and transferring assets and wealth to the next generation. There are many invaluable tax reliefs which with careful planning can be availed of, to minimise both capital gains tax and capital acquisitions tax.

When contemplating disposals of businesses, business owners can naively believe that it can be sold quickly with little advance planning. The reality is it takes considerable time to streamline a sale.

Some of the very valuable tax reliefs potentially available concerning a sale are set out below, and specific steps frequently need to be executed, in advance of such sales, to ensure that these valuable tax reliefs can be fully availed of.

Inheritance tax

Inheritance tax is paid on gifts and inheritances and is charged at 33 per cent. The exemption thresholds (tax-free amounts) for them were reduced considerably.

The exemption threshold between parents and children is currently €335,000. In the case of a family with two children, inheritance tax will arise, on the excess value of an Estate over €670,000 (€335,000 x 2), at the rate of 33 per cent. As a result, substantial unexpected inheritance tax liabilities are arising in many instances.

Two very beneficial tax reliefs when selling a business, from a capital gains tax perspective, include retirement relief and the 10 per cent entrepreneurial relief.

From an inheritance tax perspective, there are very valuable reliefs called business relief, and agricultural relief, which can reduce the value of qualifying business assets, by up to 90 per cent, in certain instances. These reliefs are extremely valuable and must be fully availed of where possible.

That said, there are numerous conditions which need to be satisfied; hence the need for a detailed analysis and action plan well in advance of the transaction date.

Suggestions for consideration from an inheritance tax planning perspective might include making a will and reviewing regularly, executing enduring powers of attorney, or utilising the €3,000 annual small gift exemption threshold for gifts.

Special purpose life assurance (Section 72 Insurance) policies might be considered to provide funds to pay the inheritance tax, particularly in the case of estates, consisting of illiquid assets.

Proceeds from such policies are not subject to inheritance tax. Discretionary trust clauses are frequently included in wills, to provide for children with disabilities.

Sometimes, the disposal of an asset triggers both a capital gains tax liability and an inheritance tax liability. In some instances, a tax relief is available whereby the capital gains tax liability can be offset against the inheritance tax liability.

A simple example of this is a parent gifting a property to a child. Such a transaction could trigger a capital gains tax liability for the parent and an inheritance tax liability for the child.

Tax of investment

The tax treatment of investment returns generated from offshore investment funds is unnecessarily complex. Whilst capital gains tax on profits arising on the sale of shares is taxed at 33 per cent, the tax rates applicable to gains/income from offshore investment funds are generally liable to exit tax at 41 per cent, and in some instances, 52 per cent (including USC and PRSI).

Such gains must be recorded correctly in the appropriate income tax and/or capital gains tax returns to avoid underpayment of tax and potential interest and penalties.

We work closely with pension advisors and wealth managers to ensure that investment portfolios are structured in the most tax-efficient manner. In particular, if an individual or company has substantial capital losses forward, the investment might be structured to generate capital gains, as opposed to income, thereby enabling the utilisation of these capital gains losses forward to minimise tax.

There are very generous tax reliefs available regarding pension funding through company structures. The modest pension funding limitations applicable to individuals do not apply to corporate pension contributions.

Consequently, very substantial pension contributions can be funded, tax efficiently, through company structures. Considerable changes were introduced in the 2022 finance act, particularly concerning PRSA pension contributions, which results in much more favourable tax treatment.

Bearing in mind the invaluable taxable and potentially cash saving benefits associated with pension funding, all taxpayers should be reviewing their pension structures to determine if there is a better mechanism to take full advantage of these changes.

Non-resident landlord withholding tax is being introduced, coming into effect from the July 1, 2023. This new regime will no doubt create administrative and cash flow issues for non-resident landlords.

Such landlords will need to provide certain information, to either the rent collection agent or the tenant, including confirmation of their non-residency status, confirmation of tax reference number and local property tax ID for the rented property.

It’s important for non-resident landlords to get up to speed with this new withholding tax system, which will be operated on ROS, and MyAccount.

The Revenue Commissioners are very active with compliance interventions. They take decisive action when they feel that tax leakage needs to be addressed. In addition, Revenue is actively reviewing taxpayers who have participated and/or benefited from various profit-sharing arrangements, including share options schemes.

Revenue frequently cross-references employer share activity tax returns, with details of share transactions returned in an employee’s personal tax return.

These profit-sharing schemes are used more frequently to remunerate employees in a tax-efficient manner. Some taxpayers are now only realising their legal obligations to file income tax and/or capital gains tax returns, for such transactions.

Many taxpayers are overpaying personal tax due to the failure to claim certain tax credits, which are frequently overlooked. These unclaimed credits and allowances include medical expenses, health insurance (if subject to BIK), college fees, working from home allowance, home carer credits, annual CGT exemptions and flat rate expenses applicable to specific career categories.

The practice expects substantial growth, particularly bearing in mind the Revenue Commissioners’ current modus operandi and the vast increase in the level of Revenue Interventions, combined with the increased activity in succession planning and transferring wealth and assets to the next generation.

Bearing in mind the two certainties in life, death and taxation, it does make sense to adopt a proactive approach to your tax affairs.