Experts help you dot the ‘i’s and cross the ‘t’s on your taxes

Adopting a proactive approach to your tax affairs is a crucial step for any business and more people are becoming conscious of the details. Luckily Andrew Guerin & Associates of Cork are here to help

Andrew Guerin of Andrew Guerin & Associates: there are two certainties in life, death and taxation

After a couple of difficult years, there’s an increased level of activity in the business sector, particularly in relation to new businesses and mergers & acquisitions.

There are also encouraging signs of development in the city including the new Dockland projects, Marina Park and new office developments in Horgan’s Quay, including the Dean Hotel.

While many businesses experienced severe difficulties during the Covid period, generous government supports have helped many survive such extraordinary times. The big challenge facing many firms now is the shortage of personnel and recruitment is a major obstacle to business sustainability and growth.

For over 20 years, Andrew Guerin & Associates, a firm of certified public accountants and chartered tax advisers based in Cork city, has provided a range of professional services to business and individuals, with a particular emphasis on taxation.

The practice has a wide range of successful businesses and deals with many high-net worth individuals and corporates based locally, nationally and overseas.

It provides advice in many areas such as inheritance tax, succession planning, tax efficient disposal of businesses, tax efficient structures for new businesses, and termination and remuneration packages.

Taxpayers and businesses are more proactive now and are seeking advice in advance of executing business transactions and activity in the acquisition and mergers space.

When contemplating disposals of businesses, owners often naively believe that a business, even ones built up over 20 years, can be sold within a few months. However, it takes considerable time to streamline a business for sale.

Some of the very valuable tax reliefs applicable in relation to the sale of businesses are set out below, and actions frequently need to be executed, in advance of the sale, to ensure that these reliefs can be fully availed of.

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 is a very valuable relief called business 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 need to be fully availed of where possible. That said, numerous conditions need to be satisfied, hence the necessity for a detailed action plan, well in advance of the transaction date.

Inheritance tax is paid on gifts and inheritances and is charged at 33 per cent. The exemption thresholds for gifts and inheritances were reduced considerably in recent years, with the threshold between parents and children now at €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 * 2), at the rate of 33 per cent. As a result, substantial unexpected inheritance tax liabilities are arising in many instances.

Suggestions for consideration from an inheritance tax planning perspective might include making a will and reviewing it regularly, executing enduring power of attorney, using the €3,000 annual exemption threshold for gifts, establishing family partnerships and maximising the benefits of business relief and agricultural relief.

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. If the disposal of an asset triggers both a capital gains tax liability and an inheritance tax liability, there is a tax relief available in some instances, 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.

There is a substantial reduction in returns from investments. The firm works closely with pension advisers, wealth managers, and stockbrokers 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 use of these capital losses to minimise tax.

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

Consequently, substantial pension contributions can be funded, tax efficiently, through company structures.

Revenue is very active with revenue audits, compliance interventions and investigations. It takes decisive action where tax leakage needs to be addressed.

In addition, the Revenue Commissioners are actively reviewing taxpayers who have participated in or benefited from various profit-sharing arrangements, including share options and restricted stock units.

These profit-sharing schemes are being used more frequently to remunerate employees in a tax efficient manner. Many taxpayers are now only realising their legal obligations to file income tax and capital gains tax returns in respect of such transactions.

The practice expects substantial growth, particularly bearing in mind the Revenue Commissioners’ current modus operandi and the huge increase in the level of revenue interventions, combined with the increased activity in business acquisitions and disposals.

There are two certainties in life, death and taxation, so it makes sense to adopt a proactive approach to your tax affairs.