What you should know about business pre-sale structuring

Whether a business sale is on the horizon or further away, getting your house in order is never a bad idea. Broadcaster Matt Cooper joined Corporate Finance Associate Director, Niamh O’Neill and Head of Tax Catriona Coady to discuss what pre-sale restructuring owners can do and what reliefs are available when the time comes to move on…

Here is a summary of the talking points from the session:

  • You must be able to demonstrate that you have a strong history of profitability, a well-capitalised balance sheet and that you are not the centre of the business.
  • Ensure that you are not the one who is holding all the key customers relationships. Sellers might see the management team as the natural new managers of the business, so owners should look to bring them in quite early to build trust.
  • Don’t underestimate how long it takes to complete the sales process; six months is considered a quick sale. The work involved can be a huge distraction. It is advisable to hire an expert, so you can focus on delivering growth ahead of the sale. 
  • Owners should consider obtaining a third-party valuation. From a tax perspective you must be able to stand over your appraisal of value, especially if you are transitioning the business by way of a gift. Revenue does not give an advance agreement around a valuation or any opinion on it.
  • There are three key tax reliefs: Entrepreneur Relief and Retirement Relief are capital gains tax reliefs for the seller, while Business Relief relates to a gift or an inheritance of a business for the recipient of it. 
  • Regarding Entrepreneur Relief this provides a 10% rate of capital gains tax on €1,000,000 of gains with the balance taxable at the 33% rate. With Retirement Relief, you could potentially get full relief from capital gains tax. Business Relief reduces the taxable value of the business by 90% for the recipient of it by way of a gift or inheritance, which is an extremely valuable relief. Note that conditions apply to all three tax reliefs so understanding if you qualify ahead of time is crucial.
    • For example, to qualify for Entrepreneur Relief, the qualifying employee or director of the business must spend no less than 50% of their working time in a managerial or technical capacity of that company and served in that capacity for a continuous period of three years. That three-year period must be in the five years immediately prior to the disposal of the business assets.
    • In a group situation, all companies in the group must be 51% subsidiaries and trading, carrying on a qualifying trade and not dormant; otherwise, a gain on the sale of shares in the holding company will not qualify for Entrepreneur Relief. So, for example, if there is a dormant company in the structure, it is important to remove it to be eligible to qualify for Entrepreneur Relief.
  • Have you considered your own income needs? One thing we find is that business owners will gift the business to the next generation without thinking about their own income needs. To avail of tax reliefs, they may do a lot of lifetime gifting but neglect their own financial needs and position.

Watch back the full session below or click here to view in your browser.

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