Transcript

Enda Brady: Good morning, everybody, and thank you for joining us at this morning’s webinar. My name is Enda Brady, I’m a Certified Financial Planner and one of the owners with my brother Coman of iQ Financial. You’re all very welcome. Today’s webinar is titled, Mastering Tax Efficiency in 2025: The Top 3 Strategies Every Business Owner and Professional Must Know. We are jointly hosting this morning with Mairéad Hennessy, a Chartered Tax Advisor and founder of Taxkey, Tax Consultants. We’re delighted to welcome Mairéad today and firstly at the start some housekeeping to make sure we make the most of the next 30 minutes or so. I will pass you over to Maria Devine, our Senior Financial Planning Administrator and Office Manager here at iQ Financial.

Maria Devine: Hello, my job today is to keep things running smoothly, and I’ll also be keeping an eye on any questions you may ask. The way to get involved is to click on the Q&A button. And you can type your questions in. To let you know that your questions and comments that you write in the Q&A are not visible to everybody, only the presenters and myself can see them, and we will read any questions out at the end. Any comments in the chat are visible for everybody. I’ll also put a couple of links in the chat to our iQ Financial website, where you can access our guides for business owners. And where you can also Book a Learn More Call, or sign up to one of our monthly newsletters for business owners. After the webinar, we’ll send a follow-up email with a recording of this session, slides, and the links to our guides for business owners, so if you miss anything the first time round, you can catch up later.

Now, I’ll hand back to Enda to get started.

Enda Brady: Thanks, Maria. We’re conscious that there are some attendees that may not know about iQ Financial or Mairéad and TaxKey.

So, at iQ Financial, what we do is provide a financial planning and investment management service.

to business owners and professionals. We advise business owners and professionals they tend to be over 45. And they want to sell, retire, or make work optional in 5 to 10 years. We help our clients plan for retirement. exit their business, reduce taxes, provide for their family, and invest wisely. www.iqf.ie is the best place to learn more about us, and we’ll share more ways to get in touch before the end.

We’re celebrating 20 years in business this year. And we’ve received some good news recently. For the second time running, we are shortlisted for the Financial Advisor of the Year Award at the 2025 Irish Pensions Awards, and we’re delighted with that.

Mairéad Hennessy is the Principal at TaxKey. A specialized tax consultancy that she founded in 2016.

Mairéad leads a team of expert tax consultants to advise business owners, high net worth individuals, and property investors to navigate complex tax matters. TaxKey partners with other professional advisors to provide a holistic service in delivering practical, and proactive tax solutions to clients. Mairéad is a Chartered Tax Advisor and a Fellow of Chartered Accountants Ireland with over 20 years experience as a practitioner. She regularly speaks on technical matters at professional conferences and contributes to tax articles in several professional journals. She also contributes to tax policy discussions through her involvement on the Tax Administration Liaison Committee, representing the Irish Accountancy Bodies on relevant working groups.

Okay, Mairéad, how are you? Thanks a million for coming on, how are you?

Mairéad Hennessy: Good morning Enda and Maria, and hello everyone. Delighted to be here this morning.

Enda Brady: Very good. So, just so that our attendees know, we’re going to cover three topics today, and, Mairéad, you’re going to kick us off, we’re going to talk about company share buybacks.

Mairéad Hennessy: That’s right, and so, I suppose an area that’s coming across our desks all the time, queries that are coming in consistently, is… shareholders who want to… maybe there’s a succession plan, they want to retire, they want to exit the business, and as always with these things, you say, look, plan ahead.

And I suppose a tax-efficient mechanism where it’s planned properly and implemented correctly, is what’s called a share buyback. And fundamentally, what a buyback is, is where a shareholder effectively hands their shares back to the company, right? So, the company then pays the shareholder for their share, so they’re not looking to sell their shares to a third party, they’re not looking to have another shareholder buy the shares from them. They’re handing them back to the company, okay? And where conditions are met, so typically the shareholder needs to have held the shares for at least 5 years.

You need to be able to demonstrate that the share buyback is for the benefit of the company’s trade, because the company needs to be able to prove that it’s right and proper and correct from a company perspective that it’s paying the shareholder to exit, effectively. So, a succession plan, and allowing a company to grow and thrive as a going concern going forward is a valid, very valid commercial reason.

Now, before you’d sort of get into the ins and outs of the share buyback and the tax treatment, there is very favourable tax treatment where it’s done right. The very first thing I would say to any company or shareholder who’s looking at this is to get the company valued by an independent valuer, right? That is the first question, because that tells you the amount that you can be paid for your shares, and where you’re a minority shareholder, maybe 30%, 40%, something like that, there will be a discount applied to the value of that specific shareholding to reflect the minority interests that’s there.

So that’s the first thing, get that number. And then the next thing is, can the company afford to pay you?

So, that’s a company law question, whereby, basically, it’s looking at the distributable reserves of the company, and does the company actually have the funds to make this payment to the shareholder without compromising the liquidity of the company itself. And that goes back to the benefit of the trade test that I mentioned a moment ago. So, where you have this, the shareholder as Irish tax resident, ordinarily resident, they have the shares for 5 years. They’re also not going to be associated with the company after the buyback, so there can be maybe children, adults, children, who are shareholders after the buyback, but not a spouse.

Okay, so that’s something that’s very important, not a spouse after the buyback, because that would be considered association, where a spouse has maybe a 30-40% interest, something like that. But where you have those, so say in the example on the slide here, we have the company XYZ Limited, and we have two shareholders. Shareholder B is a minority shareholder with 30%, and then we’ve shareholder A. And shareholder B wants to exit, in this case due to retirement. And they don’t want to sell to an external party, so they want to look and see how shareholder B could exit. Without using the company’s funds.

Just the next slide there, please. Thank you. So, the solution then, in this case, would be a buyback, um, where the company buys back shareholder B’s 30% at market value. And because it’s a connected party transaction between a shareholder and the company, that independent market valuation is really important, and it’s something that Revenue are focused on, those company valuations with connected party transactions.

So, in this case, we’re able to say, because by shareholder B exiting, this is going to help the trade going forward for XYZ Limited, so that benefits the company’s trade. B is fully exiting, so that’s one of the other conditions that shareholder B needs to reduce during his interest by his or her interest by at least 25%. And is no longer connected to post-buyback, that both the shareholders are not family-connected.

So what that gets us is that the share buyback qualifies for Capital Gains Tax (CGT) treatment. If we don’t meet those conditions, the amount that shareholder B would get from the company would be subject to tax at income tax, up to 52% income tax, which nobody wants, and that’s what we’re trying to prevent.

So where we’ve met the conditions, we’re into CGT treatment, and then if shareholder B has been operating in the company for at least 10 years, he’s been a working director full-time for at least 5, the company’s obviously a trading company. The exit shareholder may be able to get retirement relief, in which case they pay no tax at all, or if he or she doesn’t meet those conditions over the 10-year timeframe, entrepreneur relief is another good one to do, and that will get the tax down too by 10%. So if you’ve got CGT with no relief, you’re at 33%. With retirement relief, if you can get that, that’s the best scenario. You have no tax. But sometimes entrepreneur relief is actually an easier one to get, because you don’t need to prove you meet the conditions over 10 years, really just over 3 years, which is less onerous, and you have tax at 10%. But that’s still a lot better than the normal CGT rate of 33%, and indeed, obviously, the higher rate income tax rate of 52%.

Enda Brady: Very good. So the stages that businesses should start thinking about this. So, we find that a lot of business owners would be aware of of retirement relief, you know, as a condition, and entrepreneurial relief. So, presumably, if this works very well, where an existing shareholder with a business with good cash reserves wants to exit, doesn’t want to involve a third party, and presumably they’re in their 50s, because then to try to be in a position to use retirement relief, we’re thinking about 55.

Mairéad Hennessy: That’s fair, yeah, absolutely. We’re looking at a retirement scenario, yeah, and in terms of timelines, you know, you should be planning your exit nearly from the start, but look, that’s not realistic in a lot of cases, but certainly five years out, you know. To give yourselves and the company the time to adjust to get the tax reliefs, to have the cash there. And also, besides tax, from a commercial perspective, there’s going to be that commercial transition and bringing in replacements in terms of expertise in the company and all of that, all of that is part of a succession plan. Tax is one element, a very important element, but also then there’s the commercial realities of bringing the company and the team and outside stakeholders, suppliers, et cetera, through that transition, and absolutely, we’d be saying, you know, at least 5 years.

Enda Brady: Yeah, so that covers both the accumulation of cash, the commercial side with your clients, and also the HR side. You might need to get additional senior management in place to do some of the responsibilities that you covered before you exit. So, so age 50 or early 50s, if you were hoping to exit before 60, is a good trigger point there.

Mairéad Hennessy: Exactly.

Enda Brady: So, Mairéad, let’s say you already had a holding company structure, or you were advised in the past, is there any comment you would make there on whether that complicates or makes things easy or not, in terms of buyback as a route?

Mairéad Hennessy: So, if you go back to why you would put a holding company structure in place, and there can be really good reasons, right? I do think that a holding company structure isn’t the best scenario all the time. It depends on what the shareholders are looking for, okay? So, say you start a business, and we take shareholder A and shareholder B again, and they own their shares, 70-30, personally, in the trading company, okay? Why would they put a holding company in place? So by putting a holding company in place, it means that they would own 70-30 the holding company, and the holding company, in turn owns the trading company. And that really… the reason you would do that is where the trading company is building up reserves in the company, and we’re not, as a result of its, you know, of a strong trade, we’re not looking at either party exiting in the next 10 years. But we do have cash reserves, and we’re trying to protect those cash reserves, because once they’re in the trading company, they’re part of the company’s assets. And if they’re not needed for the working capital of the trading company, or they’re not needed for expansion and development and investment in the trading company, it’s good to get them out, and an effective way to do that is by putting the holding company in place.

So, what you would then have is the trading company would dividend up to the holding company these excess reserves, so they’re held in the holding company for other investments, so maybe if they want to invest in property, the holding company would then, you know, incorporate another subsidiary property co. So that’s another investment for them that’s separate to the trade, but utilizing the cash in the trade, effectively, all within this corporate structure.

So that all works perfectly well while there is… A and B are working along. Where it does, and you can see why it is a good way to use up, to, you know, utilize and leverage cash built up in a business. Where it gets tricky, though, is where one wants to exit, because they’re not necessarily exiting just the… they have to exit the holding company. So it’s not just necessarily exiting the trading company, it’s exiting the whole thing, which may include other investments at that time. So you’re going to be looking at a very different scenario. You’re not going to be looking at a share buyback.

You know, really it comes down to, well, obviously they might stop taking a salary from the trading company, they may no longer be an employee director, albeit a shareholder, and that succession piece of where, say, a retiring shareholder, what do they do with their shares in terms of an inheritance tax planning and estate planning? You know, and that’s where the shareholders agreement comes in, like, if you’re doing anything like that, if you’ve got two parties, shareholders to a company, there needs to be a shareholders agreement. And then also that shareholders agreement, if there’s a holding company structure, really needs to think about, okay, in the event that, you know, one of the shareholders wants to exit, or is looking at their own will, their own estate planning. What does that look like? Because not only is it the original business, if you like, it can take in a lot more than that.

Enda Brady: Mairéad, would it be fair to say, and this might be a blunt summary, but, holding companies might suit entrepreneurs who have made some provision of personal assets for themselves outside the trading company, they’re close to or are very confident about personal financial independence, and the holding company is a longer-term, further investment that might lead into estate planning vehicle longer term.

Mairéad Hennessy: Absolutely, 100%.

Enda Brady: Or would that be fair to say that… I know we’re going to talk about it in a second, we might compare that to a family partnership, but that can be part of the rationale at the start for somebody to set up a holding company, because they might be confident that their personal assets are in good shape, and they’re trying to look after the trading surpluses, after they’ve made provision for themselves.

Mairéad Hennessy: Yes, absolutely, and I would say as well that where you’ve got spouses or family members being co-shareholders, a joint holding company can be a good idea. You know, you’re sort of all going in the one direction, all the shareholders are going in the one direction from an estate planning, a succession planning point of view. Bear in mind, anything can happen to anyone, at any point in time. Where you have, you know, business partners coming together, they’re not family, they’re not married, nothing like that, a lot of the time, they would have their own holding company. And that’s where then you’re splitting out. So then, say, shareholder B held their 30% shareholding through their own holding company, then effectively, it would be their own holding company is doing the share buyback, okay? The taxes on that are a little bit different because it’s a corporate shareholder rather than an individual shareholder, but just to drive home that point.

And what I would say, then, is where you’re getting into business, where you’re a shareholder with somebody that isn’t, you know, somebody who long-term, you will have different objectives to from your own personal finances, Have your own personal holding company, in place initially.

Because if the trading company is up and running. And to put one holding company in place that covers all the shareholders, that can quite easily be done on a tax-neutral basis. You won’t trigger taxes.

Whereas if, at that point, you’re looking to put individual holding companies in place, that’s where you could be caught with CGT, particularly at 33%, there might be better stamp duty there as well, depending. Sometimes there are cases where it’s worth the hit on the tax at that point, especially if the value of the trade isn’t significant, because it does give you that flexibility over the longer term, but it can become quite a hurdle from a tax point of view in turn, where you have a trade that’s really has a strong value, and putting in your own personal holding company, where you don’t control the shares, you don’t have at least 90% of them anyway, it can get tricky from a tax point of view at that stage. So this is planning as well, and you know, 5 years might not necessarily be long enough to think about that, because that’s something that really should be thought about when you’re going into business with somebody, when you’re setting up a business.

And I suppose it might not be relevant at the very outset when no one knows if their business is going to take off, but once it looks like a business looks and expects to be successful before that value has actually kicked in, is a really important trigger point to look at our shareholdings, and are they fit for purpose.

Enda Brady: I’ll get Maria to give the attendees a reminder in a second. I think one way that I might summarize that, Mairéad, is that, we’ve talked in previous webinars, we do one tax webinar a year, and this is our 2025 tax webinar, where you talked about how you extract money tax-efficiently from your business, be it a partnership, or typically, for directors of limited companies, and we’ve talked about retirement relief, and we’ve talked about, entrepreneurial relief. We’re now touching on kind of the next level area of of additional strategies that might make sense, be it family partnerships, which is kind of pure estate planning, or holding companies that work, if it’s a family business, holding companies that work if you have different investors from different families, the use of a personal holding company. So, that’s good, and I think we can in the future, go through some examples of that, again, on another webinar, just to show the personal holding company versus the standard holding company.

But we’re going to talk a little bit about family partnerships and some of the advantages of using them, but, first, Maria has a reminder for you folks.

Maria Devine: We have a good number of questions coming in, so that’s great, but just to remind everyone, if you click the Q&A button. At the bottom of your screen, and write them in there, only the presenters and myself can see who’s written it, and we’ll read them out at the end. And if you want to talk about any of these topics in more detail, you can send us a message in the Q&A, and we can set up a meeting for you. Or you can click the link in the chat to our website to Book a Learn More call, and we’ll organise that. Okay, I’m gonna hand back now to Mairéad and Enda.

Enda Brady: Thanks, Maria. So, Family partnerships, Mairéad, the advantages when a business owner or a professional might consider using them.

Mairéad Hennessy: So, funding partnerships…I think that they are becoming more popular, and they’re going to gain traction over coming years. I suppose the reality is that, you know, there is more wealth in Ireland now than there would have been in the past. And in a lot of cases, this is the first, I suppose, generation where, you know, coming up to retirement, having accumulated assets, having accumulated businesses, wealth, and, you know, in investments. And they’re looking at, well, how do we pass this on to our children, and there’s the tax side, and that’s one side, but it’s not the whole picture. And where family partnerships come in, they’re a simple structure. They’re literally a partnership where members of a family come together, and there’s one managing partner, usually one of the parents, it would be one of the parents initially, who will have control of the assets. But the children actually have the beneficial ownership of the assets. So, what it does from a tax point of view is, it transfers the value of the assets to the children now, at today’s values, and obviously we’re assuming the values are going to go up over time, so it saves them tax. Really, the tax saving is in the timing difference. You’re giving them the value today, not in 20 years’ time, 30 years’ time, whatever the case is.

But you’re not handling them control. And so, there’s a partnership agreement that would need to be put in place by all the parties, which of itself is a really good exercise to do. It’s like a… it’s similar to a shareholder’s agreement with company shareholders in the sense that it makes everybody sit down, and talk about different scenarios, that if somebody was about to die, or somebody was to say, oh, do you know what, I don’t want any interest in these assets anymore, and they want to exit the partnership, what happens? Various scenarios, you know, what happens, and it’s a really good… process, besides the tax, besides setting up the partnership, but from a succession planning exercise that takes in, both the parents who have built up the assets, and also the children who are benefiting and are taking on, obviously, they’re getting assets, which is great, but there’s a responsibility with that, too. And that’s where the partnership really comes in, because you’re handing them the value of the assets, but you’re retaining the control. And the parent as a managing partner, can dictate when that control transfers.
Is it when the youngest child reaches 25, for example. And obviously, this is going to be very much based on the circumstances of each family and their own specific circumstances.

Oftentimes these partnerships are compared to discretionary trusts, they’re a lot simpler. There are cases where a trust may be of value instead of a partnership, but that typically arises in specific scenarios, maybe, where there’s a vulnerable person in a family, you know, maybe an incapacity, that kind of thing, where you’re looking to really protect them. A trust may be better in that scenario. That’s not driven by tax. But, you know, for where you have assets and you have children, and you’re really just looking for… and you don’t have special circumstances in that sense, the partnership is a good way to go. There’s a simplicity with it. So just then on to the next slide.

Just some high-level points to bear in mind around the partnership. It is a see-through structure, so that means every partner gets their share of the partnership profits, they would need to do their own tax return, all of that, so you jointly own and manage the business. You’re reducing the tax because you’re passing on the assets today, and it’s that time difference. And they’re a hugely flexible. They do give massive flexibility in the profit-sharing ratios between the partners. But yet, parents still retain the control, and it really is an effective way, that smooth transition and that transfer from one generation to another.

Enda Brady: Mairéad, would it be fair to say that if an individual knows they’re going to be in surplus in their lifetime, and they start down the road of estate planning for what comes after, that, in the number of examples we’ve seen, control is the biggest factor for the parent. Because the child might be solid, but just for what they don’t know, they prefer to have control until the child might get into their 30s. We’ve seen a few examples where the kids might be in college or are in their early 20s. So, would you agree that that seems to be a big motivation that they could just buy the property for the children, or transfer the asset to the children? So, the partnership has a bank account. The parents control that account for dividends, or rent, and they find that important, so there is that protection there for the children.

Would you find that that tends to be the predominant motivation? And will you speak a little bit about the future CGT? There will be capital gains at a future point, isn’t that correct? On the exit of the asset, when the parents have passed away, of the exit of the partnership, sorry.

Mairéad Hennessy: Exactly, but it’ll be on in a minority amount, because the parent of the managing partner could have ownership of maybe 1%. Alright, they’ll need to have had some ownership, but it will be, you know, it will be very, very small. Really, their power, if you like, all the way along in the partnership is having the control, because you don’t need to have a huge share of the partnership to have control, you just need to be the nominated managing partner.

Enda Brady: Yeah, the future CGT, when the partnership is wound up, or assets are sold, is minimised by the fact that the majority of the assets are given to the children in the first place.

Mairéad Hennessy: Yeah, exactly.

Enda Brady: Is there any assets that cannot be put into a family partnership, or in?Is there any particular asset that can’t be… are we talking about bricks and mortar property and shares?

Mairéad Hennessy: That is the typical scenario, simply because parents are coming along, what often happens is they’re saying, look, we want to invest in a rental property, but we don’t need the rent, we don’t need the property, it’s going to go to the kids anyway, so why don’t we buy it through a partnership. That’s typically the scenario. Rather than putting a business that’s ongoing and has been there 20 years, you wouldn’t be putting that into the partnership, you know, that’s a business that’s going to have a trade, employees, all of that, you’d be keeping that out of it. This is really more, as you say, Enda, on the investment side of things. Seen it a lot with houses, where maybe the parents contribute. The partnership can borrow as well. That’s the other side of it. And, you know, so that it’s kind of investments going forward that will be put into this partnership. I wouldn’t necessarily be saying existing investment properties to transfer into a partnership, because that can trigger taxes as well. It’s more going forward that you have the partnership set up, so it’s there when you go and, you know, purchase more shares.
When you go and purchase an investment property. That’s the typical scenario.

Enda Brady: Very good. Folks, I’m conscious of time, we’re at 29 minutes past, based on my clock here. I’ll just quickly cover the third topic. We’ll do a quick summary, then we’ll open up for questions. So, folks, the third topic we just want to cover is what we call the benefits of knowing your number.
So, it’s important for business owners and professionals to know the amount of personal assets they need to accumulate to give them the choice to work. So, a lot of the tax strategies that we were talking about, or that Maria has been talking about there, are when you know if you’re going to have a lifetime surplus. You know the personal assets that you need. So, knowing your retirement number, sometimes we call it your financial independence number, knowing your number is the start of tax planning, and financial planning should add real value here.

So, when you do a personal financial plan. You will do a number of things. You will list what is important to you. You’ll put a figure in today’s terms, on what your desired lifestyle would cost yearly for the rest of your days. Then you can estimate your retirement fund, your financial independence fund. You can estimate your number that you need, at the age you want the choice to work. And then you’ll know also, if you need to invest, and how to invest, to reach and maintain that number. So, financial planning and tax planning is a team sport. And your financial planner should project manage your plan, working with you, your accountant, solicitor and tax advisor.

So, if you know your number, you can make better decisions. You can make better decisions about the amount of salary you need to take from your business, which can help save you tax. You can make better decisions about how much cash you need to keep in your trading company for emergencies.
And you’ll know the amount of emergency cash you will need personally, you’ll know how much you need to invest each year, you’ll know how much is the minimum you need to get if you want to sell your business. You’ll know the type of investment returns you want to achieve as a minimum, and you’ll know how best to use the available tax rules. So, tax planning starts with understanding your number, your target retirement fund, or as we sometimes call it, your financial independence number.

We also have more sophisticated technology to help us plan. Help us plan in a way that looks at your overall situation instead of, um, forcing you to make decisions piecemeal. Something that can help you look in advance at different tax implications of decisions you might make. So, that’s just the benefits of financial planning and knowing your number as part of getting the best tax solutions for you.

So, in summary, the three areas that we covered, Mairéad touched on company share buybacks. Mairéad talked about the advantages of family partnerships, and we talked about the benefits of knowing your financial independence number.

So, finally, before we take questions, we just want to jolt you into action.

So, what are your next steps? Well, we suggest we ask yourself the following.

• Have you reviewed options for how you can efficiently extract wealth from your business?
• Do you know how to provide for your children tax-efficiently?
• And, do you have a personal financial plan for a tax-efficient business exit for family provision and smart investing?

If any of these resonate with you, we’d love to hear from you.This might be the step that saves you thousands and gives you peace of mind.

We’ll take a breath there, Maria, and we’ll take a look at some of the questions that we got in, and you might remind the guys about time and the recording if people are under pressure time-wise.

Maria Devine: Sure, so we’ll start taking a look at the questions now. We’ll finish the webinar on time, but we can stay online to keep answering all the questions that have come in. Everyone who registered this morning will receive a recording and a copy of the slides, so you could, watch the question section back again if you need to. Okay, so the first ones were sent in when people registered, so thank you for sending those in.

Our first question is from Violetta. And she asks, can you withdraw money as dividends from your company to save tax, and how does it work?

Enda Brady: This is more UK-based, I think, isn’t that right, Mairéad

Mairéad Hennessy: That’s right, yeah. So, in Ireland, you know, where you take dividends from the company. It’s not, from a tax point of view, it’s not a good way to go. Typically, firstly, the company can’t get a tax deduction for them the way it can for salary, and secondly, as they, you know, say an individual shareholder, you’re going to be taxed at the higher rate income tax at your marginal rate on the dividends. Um, so there’s no tax saving there from a personal side, and it’s more expensive from the company’s perspective.

Maria Devine: Thanks. The next question is from Philip. He says, inheritance tax increase predictions?

Enda Brady: Philip is asking for inheritance tax. Oh, this is the increase, um… Well, um, we don’t have a crystal ball, Philip. Thank you for your question. We were discussing this a day or two ago when we saw the questions in advance, and thank you, Philip. There was no change in the inheritance tax thresholds.
I suppose, in general, the more left-wing, left-leaning governments might reduce those thresholds.
It was strongly rumoured before the budget that one change to capital acquisitions tax thresholds,
would be that, an individual or couples who didn’t have any children could nominate a niece or nephew or other blood relative to avail of the group B tax threshold where you can gift up to €400,000 to a son or daughter, but, that didn’t happen in the budget, so unless you have a crystal ball Mairéad, I don’t think we can give more than that, but thank you for the question, Philip.

Maria Devine: Okay, we have a question from another Philip, who asks, how does one access company funds if retiring and closing up?

Mairéad Hennessy: Is this maybe where there is a liquidation? So the company is closing up, and there’s funds in it. That would typically need to go through a liquidation process, so a liquidator would need to be appointed, it would need to be brought to the Revenue for approval, and then on liquidation, the proceeds would be distributed to the shareholder. Typically, CGT would apply there, and if there’s been a trade carried on within the previous six months, you may be able to get retirement relief, potentially entrepreneur relief can apply if retirement relief doesn’t, but to get the entrepreneur relief, you need to have been, um, trading up to the date that a liquidator is appointed. So there’s practical, sort of, timing issues there as well, or just considerations, really, more so. And I would always say to somebody, you know, where you’re looking at a liquidation, it is a process, so there’s costs involved there. Always remember to factor them in. And where you’re liquidating your company, because you’re ceasing a business, you do need to genuinely cease that business, otherwise the Revenue, you know, they are looking at liquidations, they all go through the Revenue process. So certainly, you know, it’s important that you’re certain that you’re finished at that stage, in that particular business.

Enda Brady: Sometimes, Mairéad, some of the clients that we deal with are a little bit surprised that there’s a particular process required for voluntary member liquidation, but the CGT reliefs are available if planned correctly, entrepreneurial relief and retirement relief may be able to be used. So that is something available for every single business in the country if they never thought about passing it on, they didn’t think about holding companies, they never thought about a third-party sale, the retirement relief and entrepreneurial relief provisions, if planned correctly, might give you a significant CGT saving, you know, so they’re there for every single business. You don’t have to be selling to a third party or passing it on.

Mairéad Hennessy: Exactly.

Enda Brady: Thanks, Maria. Yeah, we’ll do the next one.

Maria Devine: Okay, the next question is from Prathish, and he asks, what’s the most tax-efficient way to structure ownership between the trading company and a potential holding company?

Enda Brady: In 10 seconds there, Mairéad, please.

Mairéad Hennessy: Look, it depends on what way… what your objectives are, and I suppose that’s what I was referencing at the outset when I spoke about holding companies a minute ago. Really, your choice is either the holding company owns all of the shares, or you retain some of the shares, personally. And there’s benefits to doing that. Really, it’s on a case-by-case basis, but we do see that it does… it can make sense for, you know, set up a holding company, but retain maybe 5%, in your own personal ownership. But again, these are all things that would need to be looked at on a case-by-case basis to see how many shareholders there are, who are the shareholders, is it just one, or is there a number? Are they family shareholders? Are they business partners? What’s the scenario? What works from a tax-efficient
point of view really is case-by-case.

Maria Devine: Great. Okay, moving on to the questions that have come in during the webinar. The first one is, In terms of valuers, are there any you recommend, and how much should people expect to pay for a professional valuation? Should they use the company auditors, if applicable? Or are the auditors not best placed?

Enda Brady: This is to have the business independently valued before you decide to do things like buybacks for planning your exit, Mairéad. Any preference there? I can give our steer on that.

Mairéad Hennessy: Do you want to go ahead first, Enda? And then I’ll give my thoughts.

Enda Brady: Yeah, so what’s happened in a few situations for us is that there are a number of.
corporate finance specialists who we refer some queries to, and even though the word corporate finance might make you feel like they’re lending money or financing deals, corporate finance specialists are there to advise. Businesses on the most appropriate exit strategy and value for that particular business at that particular time, in that particular industry.

So we find that, generally speaking, for four figures sums, and it depends on the amount involved, that a corporate finance specialist can sit down with you for a strategy session, ideally a few years in advance.
And once they understand your business, they can help you, and give you fee proposals around what it will take to value that business. Typically, when a corporate finance specialist talks to, in the situations that we have seen, ideally, they’ll have experience with other players that are working in the industry that you’re working in. And they’ll have some experience about recent, you know, transactions to inform how your business was valued, and how somebody in a similar position sold or exited.
Also, they tend to look, at least in our experience only, they tend to look at how the business is structured, and how dependent that business is, and the recurring income, and the turnover from that business on the founder and the owners themselves. So, this is a little bit blunt and a little bit crude, but, businesses that have, management structures in place to make the founder and owner exiting, to make the business less fully dependent on that person, tend to have a bigger value. I think for sort of four-year sums, you can have strategy sessions done, you know, with a corporate advisor who can share with you
how to value your business and where your business might be compared to your competitors. The more detailed advice itself can involve larger fees, but it depends on your specific business, and the amount that you might need from that advisor. But we have 2 or 3 corporate finance specialists that we can use to help businesses with that strategy day, and to help them plan their business. Is that what you see, Mairéad?

Mairéad Hennessy: I would absolutely agree with exactly what you’ve said there, Enda, and just, I suppose, specifically, from the tax perspective, what Revenue is…the whole area of valuing companies, private companies, is very much on Revenue’s radar at the moment, right? And, like, they have really beefed up their valuation panel. And where Revenue challenge, and they do, and I think increasingly they will, because they really see it as an area to be challenged, I suppose. It’s not a tax advisor or a tax professional that’s going to be challenging it, it is a valuer, it is a corporate finance professional that is going to be challenging, with their own valuation, and, you know, what I would see is when Revenue raised queries, what they look for are detailed reports.

So covering the likes of what Enda has covered there, the industry you’re in, the type of business you’re in, a breakdown of your income, recurring income, the level at which that business can grow without the owner, how independent that business is. If a business is all about the owner, really, how much value does it have? And having that substantiated and cross-referenced, you know, over industry, recent transactions based on size, type of business, type of client profile, all of that. All of that feeds into an overall valuation report, and that is what Revenue expect to see when they raise questions, and similar to Enda, we would work with corporate finance professionals on that side of things as well.
Enda Brady: Very good.

Maria Devine: So, next we have, do you have to get Revenue approval for a share buyback if you meet all the conditions?

Mairéad Hennessy: No. Revenue used to help us out, … I was talking about the benefit of trade test there when I was going through the slides, and that, you know, sometimes there can be a bit of…does this benefit the trader? You know, are we sure it benefits the trade? And really, you’re going back to what’s a bona fide commercial transaction, and, stepping it back, is the company better having done this buyback compared to not doing it, right?

And Revenue, it used to be a little bit of a, I suppose, a comfort blanket, where Revenue would give an okay on, yeah, that meets the benefit of trade tests based on the facts that you’re giving us. Revenue, though, in the last, I’d say, 8 years, give or take, have said, no, you know, it’s a self-assessment, you have the rules there, you have the legislation, we have guidance (and Revenue, do have detailed guidance), you need to on a self-assessed basis, decide that for yourself. Now, one thing we do have now, and it’s coming more and more of a valuable resource for advisors is the Tax Appeal Commission determinations that look at all of, you know, the cases coming through with all of these scenarios. And while they’re not legally binding determinations, maybe the way a Supreme Court case is, you know, you can all the same look at cases where there is a similar fact pattern, follow the line of reasoning, and that are really well detailed out of these determinations, and apply it.

What you do need to have is, okay, we have done this share buyback, we are happy that we meet all the conditions, but you need to document your basis, so that if and when Revenue after the fact…you will be filing returns, you have to claim reliefs on returns, all of that, you’re ticking boxes. The important thing is that a couple of years later, if and when Revenue raised questions, you know, whether that’s 2, 3, 4 years later, that you have documentation, that is there in black and white, saying, we did this, these are the rules and the legislation, and this is how we formed our view that we met those rules at that time. That’s the important thing.

Maria Devine: Thank you. This next question refers back to the example company in the slides. It says, what if majority shareholder A doesn’t agree to the buyback and just wants shareholder B to retire and keep his shareholding? Does shareholder B have any leverage, especially if an external sale isn’t feasible because of the nature of the business?

Mairéad Hennessy: Look, I mean, there’s the legal question there on what’s in a shareholder’s agreement, and any shareholder’s agreement is going to set out when one person wants to leave, what happens. I don’t think commercially it’s ever a good idea, you know, if I was in a business and there’s a shareholder there who didn’t want to stay, how is that going to help the business for them to stay?
So I think, you know, the reality is when somebody is coming up for retirement, that’s not going to take anyone by surprise, usually, if it’s because they’ve reached 60 or whatever it is. I think the commercial realities would dictate what makes sense there in a lot of cases, but I think equally, this is another reason why it’s really important to have a shareholders agreement, because they deal with these scenarios when somebody wants to leave. What are the options? What are we all signing up to here?

Enda Brady: I would say the same to add to that, in our experience, Mairéad, if you take 100 limited companies, 95 of them won’t have a shareholder agreement.

Mairéad Hennessy: I know.

Enda Brady: Got into business together for the right reasons. There’s understandably a lot of trust there. They’ve accumulated turnover, and off they go. So, there’s probably a load of work to be done. And there is a lot of advantages if there’s a dispute, if they know how to mediate over a business issue through the normal trade. What happens if one of them gets sick? What happens if they lose a key employee? As well as the more obvious ones about a clear agreement about how you would exit. I don’t know if that’s your experience, but we’re encouraging shareholder agreements all over the place, because for good reasons, they tend not to be there at the start. And there’s no problem doing them after the fact, but, yeah, the shareholder agreement will deal with the core part of that question, Mairéad.

Maria Devine: Okay, and the next one is, can shareholder A and B agree a price for the shareholder B shares, or is a valuation required?

Mairéad Hennessy: This comes up all the time. And it’s a really, really important point, because it’s a connected party transaction, the company is giving… the shareholder is handing back the shares to the company, the company paying that shareholder for those shares, it’s a connected party transaction, it absolutely needs an independent valuation, and that’s the tax side of things, right?

There’s also the company law side of things. Where, you know, to protect creditors of the company, etc. The company has to show that the amount it paid its shareholder was an appropriate amount for the shares, and that’s not in any way what the shareholders decided it was. That’s based on an independent valuation. That is absolutely key.

Maria Devine: Very good. Next question, can the company borrow to raise cash for a buyback?

Mairéad Hennessy: Typically not, because that could undermine the trade benefit test, the company is now taking on debt to do this. Also, after the buyback, you know, not more than 30% of the loan capital of the company, or share capital, loan capital, etc, can be related to it. So, typically, we’ll be saying no. Again, case by case, but, you know, it would be very exceptional that you would look at taking in borrowings to the company, because that means the company is adding to its liabilities by taking on debt.

Maria Devine: Thank you. Does setting up a holding company influence a plan to move available cash into pensions?

Enda Brady: Just in our experience, it might influence a plan to put money into pensions, yeah, if you need to continue to fund, if based on your plan, you need to continue to fund your pensions from your trading company, from your normal limited company, then, if those funds are put into a holding company, less funds are available for the trading company to fund pensions. So, yes, you would deal with that as part of your plan, the funds available. So, the business owners that we have, we typically get them to think about their benefits from their trading company being their salary and their pension contributions. And then separately thinking about what the need for working capital, and then after that, what might be surplus.
And as the surpluses, you know, go on, those surpluses, it might make sense to put them into the holding company. But that’s after they’ve made their own pension provision. So, yes, I wouldn’t be putting funds up into a holding company that you want to use for your own pensions. I would be making the pension contributions, if it makes sense to do so, from your trading company. I don’t know if you want to add anything to that, Mairéad.

Mairéad Hennessy: No, I completely agree with that, Enda, absolutely.

Maria Devine: Okay, we have the next question. Is the benefit of trade test mentioned at the outset regarding share buybacks? Is this in respect of the company having sufficient reserves and affordability, or other aspects?

Mairéad Hennessy: So, it is what it says. Does it benefit the trade? And that’s everything that that entails, so benefiting the trade of the company is the financial end of it, so if you’re going to undermine your balance sheet, that’s not going to be for the benefit of the trade. But also looking at other reasons, like, really what you’re saying is, is the company in a better place to continue going forward? So, you know, if you have a thing where certain clients might leave because of this, or, you know, that’s where you need to have the succession plan built up over time. Like, it’s not that somebody comes in, a shareholder comes in today and says, right, that’s it, I’m gone. There needs to be a succession plan done over that, say, 3-5 year period that we’ve talked about. So the company has been brought to a position, like, this has been planned well and ahead of it being executed. So the business has been brought through a process of, you know, of the transition, of the succession, and then when we look at the value and the amount that needs to be paid to the shareholder, that that’s not going to financially undermine the trade. So it’s taking it all in the round that the company is now having gone through this process and then executing this buyback for the company, is in a better place going forward.

Enda Brady: We’re breaking our records here for questions, Mairéad. We stopped talking at 10:33, we’re 20 minutes in. We’ll keep coming until about five to, so we can wrap up before 11am. Is that okay, Mairéad? We’re having a good problem here, we’re getting more questions. Keep going, keep going.

Mairéad Hennessy: Yeah, that’s fine.

Maria Devine: Okay, next one. A query that always comes up in these situations would be, what do Revenue view as excess cash, and therefore not likely to qualify for a retirement relief in the hands of the shareholder? And what is the burden of proof for this, in your experience?

Mairéad Hennessy: The retirement relief may or may not dilute it. It depends on the amount, but if we just take… without getting into the ins and outs of the reliefs, okay, because it’s a different consideration for retirement relief compared to, say, maybe, capital acquisitions tax , business relief on the other side.
When we look at excess cash, right, and it’s something that comes up all the time. It’s very much case-by-case, because it’s business by business. So, what you’re doing is you’re saying to the business owners, okay, they are the people best placed to identify what is excess cash. It is, what do you need from a working capital perspective to operate on Monday, right? You know, in terms of your debtors, your cash, all of that, what is your bottom line to turn the lights on, right? That’s the first thing.

Then, okay, what do you need to… are you going to be hiring employees, for example? Are you going to be investing in the company? Are you going to be buying machinery? Are you going to be buying property? What’s it there to do for the, for the company? That needs to be documented, where you’re looking at the, cash reserves and why they’re in the business. You need to document it, right? So there’s your day-to-day working capital, and then other things that you’re going to use it for in the business to develop the business.

The thing is with excess cash, these questions, because, you know, you’re looking at them through the lens of claiming tax reliefs, where you’ve got, you know, ticking boxes in your tax return, the reality is, Revenue will come along after the fact to raise these questions, maybe 2, 3, 4 years after the fact. So you’re looking back at that time and saying, okay, well, you said at that stage you were going to hire 10 people, so you needed to keep X amount on your balance sheet, but you never hired, you hired two, so… you know, how does that stack up? So what I’m saying is you need to have that follow-through. Whatever you say, right, this is what the cash reserves is, this is how it’s not excess cash because of X, Y, and Z reason. You need to think, well, how do I stand over that, even when I am asked questions down the road. And that’s for the business owners to take upon themselves.

Enda Brady: One last one, Maria.

Maria Devine: Thank you. We’ll do one more. Okay, are there any particular reasons why a person would use a family partnership rather than give or hold shares in a company on trust for their children.

Mairéad Hennessy: With trusts, we didn’t really get into, but trusts, I suppose, as I was saying, at the time, back at the slides, trusts are far more complex structure. You need trustees, there can be extra taxes with them, they typically would not be, … you know, they need a lot of work on an ongoing basis, right? So, where they go on over a long period of time, they can become quite expensive. From a tax point of view, but also just in a general running-of-them point of view. So, the beauty of the partnership is the simplicity in the structure, so that’s why I would be saying, you know, I’d look at a partnership, first, before I look at a trust. As I said, there may be cases where a trust does work if there’s a kind of a particular vulnerability or somebody maybe you’re trying to protect. But they are a more onerous, complex vehicle if you don’t have those sorts of considerations.

Enda Brady: Okay, folks, if we have some more questions, which I think we do, Maria, we’ll get back to those individual attendees to make sure we get their questions answered, because in fairness we sell attending live to make sure your questions are answered, that’s what we tell people, but I think this is the first time we’ve ended up at 11 o’clock and still some questions. So, we will make sure that we will come back to you today, you know, with answers to those questions.

Folks, if you want to talk to us about anything that we’ve discussed today, there’s our contact details. You can go to our website, which is www.iqf.ie and you can book a thing called a Learn More Call. There’s a button at the top of our website. And you can also contact the team at TaxKey and Mairéad if you go to https://taxkey.ie. Thanks a million for your time today, Mairéad. It’s really, really appreciated.

Folks, we hope you all found the session valuable, and we welcome feedback about this session, so that it’ll help us with future events. So, we would be grateful if you could leave a review about the event at the iQ Financial Trustpilot link. And there’s a Google review option there as well. This is the last of our webinar series for business owners and professionals in 2025. So, look out for us communicating our next webinar, which we will do very early in the new year.

Thanks a million for your time this morning. Goodbye.

Mairéad Hennessy: Thank you, goodbye.