Ltd company, taxation & succession planning

Catglee

Before getting into the detail, a tax accountant will be engaged however on the scenario below am looking for some food for thought as much as anything.
Father is 70.
He is retired from a senior civil service position on a v generous pension.
He owns a farm from which he draws an income.
Not content with a quiet retirement, he set up a one man consultancy business a NR of years ago (Ltd company) which has been moderately successful with next to no overheads as he works from an office in the house.
He takes a wage and pays my mother a wage from this business.
Cars purchased by the business, jeep purchased by the farm.

In conversation he mentioned that he has approx 500k in the office account which will grow significantly in the coming years and he can't take anymore out of the business without the tax man getting a large donation for every euro.
He is not in need of any further income, he works because he enjoys it but is starting to worry about succession planning, tax liabilities should something happen etc..

He is planning to see a tax accountant however in advance would like to have an understanding of what others in such a situation do.... Invest in property, bring in other shareholders, etc.
He says he has no interest in investing in further pensions as he already has one that keeps him in an excellent lifestyle....
Ideally I think he would like to have a mechanism in place which would see his children, and particularly his grandchildren benefit without a major portion going to tax if it can at all be helped.

So over to you boards.. If you were spit balling with him what avenues would you suggest he explore??

Thanks

CIARAN_BOYLE

Well I believe the 500k might be the lowest hanging fruit.

Are there many grandchildren old enough to work but not working. Probably talking about the 16-22 age group here. Doing the full time school or college thing perhaps.

They would have their full tax credits and cut off points if put down as an employee of the business. He could tailor the salary based on what he wants to pay in taxes.

He could also make it known that he would take additional salary to pay for anything he would get a tax deduction for for any of children or grandchildren. So grandchildren come to him and he would pay college fees and get a tax credit.

barneystinson

CIARAN_BOYLE wrote: »

Well I believe the 500k might be the lowest hanging fruit.

Are there many grandchildren old enough to work but not working. Probably talking about the 16-22 age group here. Doing the full time school or college thing perhaps.

They would have their full tax credits and cut off points if put down as an employee of the business. He could tailor the salary based on what he wants to pay in taxes.

He could also make it known that he would take additional salary to pay for anything he would get a tax deduction for for any of children or grandchildren. So grandchildren come to him and he would pay college fees and get a tax credit.

"Putting down" someone as an employee, who isn't in fact doing any work for the business, sounds like tax evasion Ciaran, and an area that Revenue have tightened up on in recent years.

On what basis would he be entitled to a tax deduction for paying the college fees? Are you just talking about the regular tax credit, which is 20% of the amount in excess of a chunky threshold, which would be only a fraction of the 50% marginal rate on additional salary..?

The J Stands for Jay

The pension is the way to go. 25% will be tax free (depending on how much was taken from precious pension), or taxed at 20%. Balance can be invested in an approved retirement fund which can be passed to family on death.

The tax accountant will also be able to advise on some pretty generous farm retirement relief schemes, and there is a possibility of similar for the business (but not as generous, and possibly depends on someone else taking over).

DmanDmythDledge

CIARAN_BOYLE wrote: »

Well I believe the 500k might be the lowest hanging fruit.

Are there many grandchildren old enough to work but not working. Probably talking about the 16-22 age group here. Doing the full time school or college thing perhaps.

They would have their full tax credits and cut off points if put down as an employee of the business. He could tailor the salary based on what he wants to pay in taxes.

He could also make it known that he would take additional salary to pay for anything he would get a tax deduction for for any of children or grandchildren. So grandchildren come to him and he would pay college fees and get a tax credit.

That's one of the worst posts I've ever read on this forum. Posters on this forum really need to be approved to post, similar to other forums on here.

Anyway, I think it sounds like the 500k could be extracted tax free, or at least a good chunk of it.

Things to consider:

- retirement lump sum
- CGT retirement relief
- CGT entrepreneur relief

Depending on how much the business grows (and all the facts and circumstances) , the above could get the funds out paying little or no tax

Pension contributions and a self administered pension scheme could be considered if he's thinking about investments also but I am not offey if this is possible based on his age

Re grandkids, does he and his wife each utilise the 3k small gift exemption for passing cash on to grandkids?

Make sure he goes to a proper tax advisor - the majority out there are useless