Tax concerns are a crucial element in wealth management and exit strategies

While tax considerations are important for every individual looking to wealth management, they are especially crucial when planning an exit strategy from a business. Cian O'Sullivan, Partner in the Private Client Tax Services team at BDO Ireland, shared insights on this and more in an interview for Business Post. 

For anyone looking to preserve and optimise wealth, tax considerations should be at the forefront of any strategy – and as there’s no ‘one size fits all’, it’s essential to ensure you get the right advice from experienced experts.

“It is very important to integrate tax into the overall strategy. While tax should not dictate investment decisions, neglecting its importance can lead to unpleasant surprises. Given that the rates for capital gains tax (CGT) and capital acquisitions tax (CAT) are 33 per cent, tax considerations are always central. Ensuring your investments are properly structured is critical. This might include using corporate structures to hold active investments, which may qualify for a CGT exemption (the participation exemption), or discretionary trusts to protect wealth and defer CAT as it passes from one generation to the next,” said Cian O’Sullivan, tax partner in the private clients division at BDO.


O’Sullivan stresses the importance of optimising tax reliefs when exiting a business in particular. 

“Tax is a crucial component of the exit strategy. Numerous reliefs are available on the sale of shares or business assets, making pre-planning essential to ensure the qualifying conditions are met. Although these reliefs are designed to encourage entrepreneurship and facilitate intergenerational transfers , they come with strict conditions. The interpretation and application of these conditions are stringent, and small, nuanced factors can often disqualify the reliefs. We see this all too often, underscoring the importance of advanced, timely tax planning.”


Planning well and planning early is crucial – and this is where an expert such as BDO can prove invaluable. 

“While the finer details do not need to be finalised early on, it is important to consider your holding structure from the beginning,” said O’Sullivan. “This can provide flexibility for your succession or exit plans later. For example, holding your interests through a holding company from the outset may facilitate a tax deferral at the holding company level. This might be difficult to implement at a later stage, especially if additional investors have been introduced."


Ensuring your investments are properly structured is critical

“Additionally, some age-related reliefs make timing critical. For instance, for CGT retirement relief, the difference between transferring shares to the next generation at age 69, versus 70 can be 33 per cent where the value exceeds €3 million.”


In addition, while no one likes to think about death, timely planning is also crucial when it comes to thinking about the next generation and what happens to your wealth if the worst was to happen.

“A valid will and enduring power of attorney are essential to ensure your estate is distributed according to your wishes and to prevent you from being made a ward of court in the event of incapacity,” warned O’Sullivan.


Regarding tax, Irish CAT is extensive and applies to both gifts and inheritances. Although there have been calls for a reduction in this tax in recent years, it is unlikely given the fiscal risks and challenges ahead. While there are certain tax reliefs they are limited and absent these, 33 per cent of the wealth stands to be eroded after the relevant tax-free thresholds are utilised. To mitigate this, consideration can be given to settling assets on a discretionary trust on death which, besides protecting the wealth in accordance with the settlor’s wishes, can also defer the CAT taxing event until the assets are distributed from the trust. However, it is important to note that additional discretionary trust taxes apply on the later of the passing of the settlor or the youngest beneficiary who is a child attaining the age of 21. With this in mind, a recommended strategy is to transfer wealth during your lifetime, allowing any future growth to benefit your beneficiaries instead of you, thereby avoiding additional CAT on a future inheritance. One such structure to facilitate wealth transfer without losing control is a family partnership. Under this arrangement, money can be gifted to each child on the condition they invest in the partnership. No tax should arise on gifting this amount provided it is below the group A threshold (currently €400,000) Additional capital can be contributed by way of loans from the parents if needed, but there are tax implications to be considered with this. The growth and wealth accrue to the children as partners, while the parents, as managing partners, can control distributions and the partnership’s affairs.
Cian O'SullivanTax Partner, BDO Ireland

Finding the right strategy is clearly the way forward when it comes to estate planning whether exiting a business or thinking about your descendants – and the importance of getting the right advice from an expert such as BDO cannot be underestimated.


Content adapted from Business Post.

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