“The Government has today decided that an overall adjustment of €15 billion over the next four years is warranted in order to achieve the target deficit of 3% of GDP by 2014. The Government realises that the expenditure adjustments and revenue raising measures that must now be introduced will have an impact on the living standards of citizens. But it is neither credible nor realistic to delay these measures. To do so would further undermine confidence in our ability to meet our obligations and responsibilities and delay a return to sustainable growth and full employment in our economy.” Government Statement, 26 October 2010.

In a client update in October 2009, we raised the question “Passing on the Family Business – Is now the time to do it?”

Given the current economic environment and recent commentary in advance of the forthcoming Budget on 7 December 2010, we re-produce in this client update our previous comments and ask again the same question with perhaps renewed urgency “Passing on the Family Business – Is now really the time to do it?”


Estate planning is the process where wealth is transferred from one generation to the next in a tax efficient manner.

The Commission on Taxation (the “Commission”) Report (published on 7 September 2009) has proposed that many existing reliefs be substantially curtailed.

The key taxes to be considered in a business transfer are Capital Gains Tax (“CGT”) for the donor, and Capital Acquisitions Tax (“CAT”) and stamp duty for the beneficiary.


At present, full relief from CGT is available where an individual, aged 55 or over, gifts a qualifying business, shares in a family company or a farm to a child, regardless of the value. However, if the assets gifted to the child are sold within six years of the date of gift, the CGT becomes due.

In relation to CAT, a relief is available which treats gifts and inheritances of business assets (“business relief”) more favourably than other assets. The relief reduces the taxable value of business assets by 90% where the relevant business property has been owned by the donor for a qualifying period. The relief is withdrawn if the property is sold within six years and is not replaced by other qualifying property or ceases to be used for business purposes.

Equivalent relief is available for agricultural property (“agricultural relief”).

At present, the entire benefit is taxable at an effective rate of 2.5%.


Taken together, the restrictions proposed by the Commission would impose an effective tax rate of 6.25% on a gift to a child of relieved assets worth €4 million. An effective tax rate of 25% would apply on any further value gifted to that child.

The following example illustrates the significant impact of the Commission’s recommendations, if the reliefs are restricted.

At present, a transfer of shares in a family company worth €10 million to a child, where the conditions for the CGT and CAT reliefs described above apply, would be taxable at an effective tax rate of 2.5%, giving rise to a tax liability of €250,000. If the Commission’s recommendations are implemented, the effective tax rate would be 17.5%, giving a tax liability of €1.75 million, assuming that CAT/CGT set off relief would be available.


The Government indicated in 2009 that the recommendations of the Commission were more likely to be introduced over the longer term, rather than the shorter term. Whilst no change was introduced in December 2009, given the current economic environment, there is real concern that some restrictions are likely to be introduced in the forthcoming Budget, on 7 December 2010, to raise substantial additional revenue.

For this reason, we recommend that clients take advantage of the reliefs currently available at the earliest possible date. In addition, the market value of assets at the date of transfer is relevant for tax purposes, and given the current depressed state of the market, now appears to be an opportune time to make gifts of qualifying assets at a low value.


Very often, clients wish to retain control of a business after the transfer of economic value to their children. A limited partnership can prove to be a useful structure for these purposes.

A limited partnership is one where the limited partners have limited liability and are not entitled to participate in the management of the partnership. In the family context, the children could be limited partners with the family matriarch or patriarch, as the case may be, the general partner who has exclusive management and control over the partnership but has unlimited liability.

In this instance, it should be possible to pass on the economic value of a family business to the children in a tax efficient manner by availing of the above reliefs, while at the same time retaining control.


Some clients may not wish to transfer assets to particular family members at this point in time. In this instance alternative mechanisms can be put in place to minimise the tax costs of the Commission’s recommendations, if implemented, and/or ensure that any future increases in the value of shares in a family company are attributed to the next generation.

For the owners of valuable family businesses, now is an opportune time to consider passing some of the family wealth to the next generation without incurring significant tax costs.