Tax on asset use

Timothy87

75% of a business has been inherited by my father and 25% by his cousin. It has been proposed that the cousin will run the business for 5 years rent free at the end of which he will transfer his 25% share to my father.

Wondering under irish law would my father have to pay tax on the 25% being transferred? If so is there any way to avoid this?

barneystinson

Timothy87 wrote: »

75% of a business has been inherited by my father and 25% by his cousin. It has been proposed that the cousin will run the business for 5 years rent free at the end of which he will transfer his 25% share to my father.

Wondering under irish law would my father have to pay tax on the 25% being transferred? If so is there any way to avoid this?

Sorry pal, but there's very little usable info in that post?

What do you mean by a "business" - is it shares in a limited company?

What do you mean by him running it rent free for 5 years? What's to be rented? Who would be in receipt of the profits?

Your father needs a decent accountant / tax advisor

Timothy87

Sole trader (pub)

The cousin would be in possession of the building and business for five years and keep all the profits.

Have been speaking to an accountant who believes this is similar to a finance lease, and as a result my father has to pay tax on the notional income he would have received.

However in my view does not strictly meet the criteria of a finance lease because as such my father does not wholly own the asset. Wondering if there was some other way to structure the deal I.e. structured so that my father would 'pay' for the asset instead of renting it. This would reduce his income tax bill?

Alan Shore

It's a partnership. Father 75% cousin 25% interest in the property/business. As the cousin works full time for the partnership it is agreed that he will get 100% of the profits.

Can't comment further as it is in relation to property and that is not allowed under the charter.

Marcusm

YOur father and cousin are de facto partners in a business; they are free to agree to split profits in the manner described and they should be taxable in the cousin's hand. However, the cost free transfer of the 25% interest would have capital acquisitions tax implications for your father at the end of the period. This sounds like an efficient method to organise a reverse earnout. You should go to a professional and get advice. An alternative method would to be to leave the profit sharing ratios as they are but with your father committing to using the post tax cash to progressively buy his cousin out of the business. The adviser would need to run the numbers to establish, taking account of the totality of the tax positions of your father and his cousin, which would leave them with the smallest shovel being shoved into their stores by the Revenue.