Capital gains tax: Proposed change 'could create a succession cliff edge for family firms'
Linehan Irish O’brien, At Effects Cgt File On Family Have Xeinadin, Accountancy Warned Pany Of Of Previously Dan Picture: The Proposed Changes Firms Will Dave Quintas, Tax The Head
A business representative group has branded as “illogical” capital gains tax (CGT) changes coming down the line for large family-owned business which could have significant ramifications for the domestic economy.
Isme urged the Government to eliminate the proposal to apply a CGT liability to the transfer of family businesses worth more than €10m, which it claimed may stifle the growth and continuity of indigenous business.
Isme chief executive Neil McDonnell said the Government “needs to go far further to support indigenous business” and said that making a U-turn on the CGT liability in Budget 2025 “would be a good place to start”.
The warning comes as family-owned business are edging closer to a succession tax cliff edge due to changes in retirement relied and CGT liability which will be enforced from January 1, 2025.
Currently, family business owners aged between 55 and 65 and who qualify for retirement relief can transfer their business to their children free from CGT in many cases.
Once they reach retirement age, a €3m cap applies to the value of any business they wish to transfer to their children with any gains above €3m being subject to CGT at 33%. However, from the start of next year, a limit of €10m will apply to the value of business assets that family business owners aged 55-69 could pass free of CGT to their children, and the €3m cap will now apply from age 70 onwards, instead of 66.
Professional services firm Grant Thornton said the limitation on the value of business assets that those aged between 55 and 69 can transfer to their children could result in family businesses needing to be sold off in whole or in part to fund tax bills.
Dave O’Brien, head of tax at Irish accountancy company Xeinadin, previously known as Quintas, echoed concerns raised by Mr McDonnell.
Mr O’Brien said he does not think “there’ll be a mass sell-off of business at the end of the year” ahead of the changes but he does forecast that from 2025 onwards, “because of the tax charges, people just won’t transfer to the next generation”.
He said the tax bill will become too large for children and subsequently “the interest won’t be there.” Mr O’Brien said the Government “haven’t thought of the long term strategic plans for these companies and these individuals”.
In its pre-budget submission, lobby group Ibec joined the critics of the changes to the cap on relief and cautioned they “will make transfer and continuation of family-owned businesses unworkable and encourages sale rather than growth of indigenous, family-owned SMEs.”
Meanwhile, Isme suggested the Government divert their focus to the domestic economy especially due to the volatile nature of corporation tax receipts which remain vulnerable to changes to economic policies outside of Ireland.