Business taxation reliefs introduced and extended over recent years have been primarily targeted at small to medium-sized privately and often family owned trading companies, including businesses carried on in the exercise of a trade or profession. These reliefs are designed to recognise the endeavours of those who have built up small to medium-sized enterprises, to encourage the future development of the small business sector and to counter liquidity problems that arise on transfer.
Those reliefs specifically targeted at reducing the burden of taxation on the transfer of businesses include capital acquisitions tax business relief and capital gains tax retirement relief.
Capital acquisitions tax business relief allows the taxable value of business assets to be reduced by 90 per cent in assessing inheritance and gift tax liabilities. The relief is available for property consisting of a business or an interest in a business and is particularly beneficial for small and medium-sized businesses. The rationale for its introduction in 1994 and improvement over the subsequent years was to facilitate the transfer of family owned businesses to the next generation. Under the provisions of this relief, each child can receive, by gift or inheritance, business assets up to the value of IR£1,855,500 from his/her parents free of capital acquisitions tax, or a family business worth over £5,566,500 can be divided among three children on inheritance without a capital acquisitions tax liability.
Capital gains tax retirement relief is available to persons over 55 years of age on the disposal of business assets, including shares in family companies, and amounts to a whole or partial exemption from capital gains tax. This is an important relief in so far as the lifetime transfer of a family business is concerned, where the potential capital gains tax liability might otherwise be substantial. The relief is restricted to aggregate disposals of up to £250,000 where the transferee is not a child of the transferor with partial relief for disposal above that amount. However, there is no such limit in the case of disposals to a child. No capital gains tax arises on assets transferred by inheritance. This relief complements the capital acquisitions tax business relief on transfers which reduces or eliminates tax payable by the recipient.
In 1994 the European Commission made recommendations in respect of the transfer of small and medium-sized enterprises, with the aim of combating business failures due to inadequate preparation or organisation of the transfer. Last year, as part of its evaluation of progress achieved in implementing these recommendations, the Commission produced a table summarising the environment for transfers of business in each of the member states. Of the 15 member states, Ireland and the UK are the only countries which provide for a 100 per cent capital gains tax exemption for transfers of businesses within a family. Ireland is only one of five member states that provides measures facilitating the transfer of businesses to a third party and is one of only three that provides roll-over relief for businesses.
