Double Tax Question

54and56

Hi,

Ltd Co A sells it's Goodwill (client list, trading name etc) for €1m to Ltd Co B. Mr X who is 56 and qualifies for retirement relief owns 100% of the shares in Co A. He liquidates Co A and pockets the proceeds.

Am I correct in stating the following?

1. Co A pays 33% CGT on the sale of the Goodwill.

2. Mr X liquidates Co A (which only has the proceeds of the sale as an asset) and pockets the €670,000 as he qualifies for retirement relief.

3. If Mr X didn't qualify for retirement relief he'd have to pay 10% entrepreneurial relief CGT on the €670,000 and thus pocket a net €603,000.

I'm not looking for advice and won't be making any decisions based on this but I am looking down the line ref my own business and just want to check that I'm understanding the CGT implications as they are currently drafted.

Heisenburg81

Je_suis_Jean wrote: »

Hi,

Ltd Co A sells it's Goodwill (client list, trading name etc) for €1m to Ltd Co B. Mr X who is 56 and qualifies for retirement relief owns 100% of the shares in Co A. He liquidates Co A and pockets the proceeds.

Am I correct in stating the following?

1. Co A pays 33% CGT on the sale of the Goodwill.

2. Mr X liquidates Co A (which only has the proceeds of the sale as an asset) and pockets the €670,000 as he qualifies for retirement relief.

3. If Mr X didn't qualify for retirement relief he'd have to pay 10% entrepreneurial relief CGT on the €670,000 and thus pocket a net €603,000.

I'm not looking for advice and won't be making any decisions based on this but I am looking down the line ref my own business and just want to check that I'm understanding the CGT implications as they are currently drafted.

Maybe I'm off the mark, but doesn't there have to be chargeable assets on the balance sheet to avail of retirement relief?
If he purchased some equipment would the be able to avail??

54and56

Heisenburg81 wrote: »

Maybe I'm off the mark, but doesn't there have to be chargeable assets on the balance sheet to avail of retirement relief?
If he purchased some equipment would the be able to avail??

Let's assume it's a professional services business eg an accountancy practice or pension advisor. No assets to talk about (small amount of office equipment) but that's it, 99% of the business value is goodwill ie customers, reputation etc

Lockedout2

In principal cash is not a chargable asset in itself.

There are differing views on large amounts of cash in balance sheets and retirement relief.

In this example as the cash has come from a qualifying business asset I think that RR apply.

If the cash came from the sale of an investment property it would not apply.

CIARAN_BOYLE

There also exists the possibility to sell Ltd Co a to Ltd Co b. Ltd Co b could operate Ltd Co a as a subsidiary or could transfer the asset within a group to avail of ct reliefs on the transfer of assets within a group.

Retirement relief could be claimed on the sale of company a.

Obviously company b would need to engage in a due diligence process to ensure that company doesnt have any undeclared liabilities following it around.

Heisenburg81

Lockedout2 wrote: »

In principal cash is not a chargable asset in itself.

There are differing views on large amounts of cash in balance sheets and retirement relief.

In this example as the cash has come from a qualifying business asset I think that RR apply.

If the cash came from the sale of an investment property it would not apply.

But if the company even buys €1,000 of computer equipment, can get full retirement relief?

54and56

Heisenburg81 wrote: »

But if the company even buys €1,000 of computer equipment, can get full retirement relief?

Alan Moores interpretation suggests goodwill is indeed a qualifying asset, see http://www.alanmoore.ie/tax-faqs/capital-gains-tax/what-is-retirement-relief/

If that is correct and the sale structure in my original post was completed would my initial calculation be correct?

Heisenburg81

Je_suis_Jean wrote: »

Alan Moores interpretation suggests goodwill is indeed a qualifying asset, see http://www.alanmoore.ie/tax-faqs/capital-gains-tax/what-is-retirement-relief/

If that is correct and the sale structure in my original post was completed would my initial calculation be correct?

Would be selling shares at a point where only asset is cash, so I think RR may not apply. Goodwill not present when shares sold.
Would possibly get Revised Ent Relief if other conditions met.

54and56

Heisenburg81 wrote: »

Would be selling shares at a point where only asset is cash, so I think RR may not apply. Goodwill not present when shares sold.
Would possibly get Revised Ent Relief if other conditions met.

Thanks Heisenburg81, i understand your point about cash being the only asset when the company is liquidated but prior to that, when it sells it's goodwill, what tax is payable by the company on the sale of its goodwill to Company B? (It's clear this isn't the optimum way to do it but let's assume that's how it's done for some unexplained reason)

Heisenburg81

Je_suis_Jean wrote: »

Thanks Heisenburg81, i understand your point about cash being the only asset when the company is liquidated but prior to that, when it sells it's goodwill, what tax is payable by the company on the sale of its goodwill to Company B? (It's clear this isn't the optimum way to do it but let's assume that's how it's done for some unexplained reason)

33%. Base cost presumably nil. Entrepreneur relief only available on shares for owners.

barneystinson

Je_suis_Jean wrote: »

Thanks Heisenburg81, i understand your point about cash being the only asset when the company is liquidated but prior to that, when it sells it's goodwill, what tax is payable by the company on the sale of its goodwill to Company B? (It's clear this isn't the optimum way to do it but let's assume that's how it's done for some unexplained reason)

From Tax Briefing 26 (dating back to 1997 but still relevant):

"Revenue Practice
Where a company’s chargeable business assets are sold as a preliminary to liquidation, a disproportionate part of the company’s assets may be held in chargeable non-business assets at the date of disposal. In practice however, the proceeds of such sales may be included in the value of the company’s chargeable business assets at the date of disposal. For this purpose, “preliminary” may be taken as meaning not more than six months before the date of disposal of the shares or date of appointment of the liquidator, whichever is the earlier."

I think that answers your original question...

Edit: the above treatment is also set out in Revenue tax & duty manual 19-06-03 at para 3.13: http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-19/19-06-03.pdf

Heisenburg81

barneystinson wrote: »

From Tax Briefing 26 (dating back to 1997 but still relevant):

"Revenue Practice
Where a company’s chargeable business assets are sold as a preliminary to liquidation, a disproportionate part of the company’s assets may be held in chargeable non-business assets at the date of disposal. In practice however, the proceeds of such sales may be included in the value of the company’s chargeable business assets at the date of disposal. For this purpose, “preliminary” may be taken as meaning not more than six months before the date of disposal of the shares or date of appointment of the liquidator, whichever is the earlier."

I think that answers your original question...

Edit: the above treatment is also set out in Revenue tax & duty manual 19-06-03 at para 3.13: http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-19/19-06-03.pdf

But Goodwill is a chargeable business asset anyway. The cash that remains is not a chargeable asset.
Chargeable non bus assets would be shares in other companies, investment properties etc..

54and56

barneystinson wrote: »

From Tax Briefing 26 (dating back to 1997 but still relevant):

"Revenue Practice
Where a company’s chargeable business assets are sold as a preliminary to liquidation, a disproportionate part of the company’s assets may be held in chargeable non-business assets at the date of disposal. In practice however, the proceeds of such sales may be included in the value of the company’s chargeable business assets at the date of disposal. For this purpose, “preliminary” may be taken as meaning not more than six months before the date of disposal of the shares or date of appointment of the liquidator, whichever is the earlier."

I think that answers your original question...

Edit: the above treatment is also set out in Revenue tax & duty manual 19-06-03 at para 3.13: http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-19/19-06-03.pdf

Thanks Barney, that's very useful.

If I'm interpreting that correctly a retiring business owner can sell the going concern business in an asset sale structure, take the cash into his Ltd Co and providing he liquidates the Ltd Co within six months he can apply Retirement Relief and/or Entrepreneurial Relief to the proceeds of the liquidation?