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Client wants to do a share buyback from retiring director and payment by €100k up front and € 200k over next 3 years, with the director continuing to work 3 days pw for those 3 years. .... will revenue allow retirement relief to apply?

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Asked on 10 August 2019 9:55 am
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To qualify for the retirement relief the buyback must be for the benefit of the trade. The Revenue manual outlines the requirements in its Instruction manual www_revenue_ie_en_tax_professionals_tdm_income_tax_capital_gains_tax_corporation_tax_part_06_06_09_01_pdf Examples include to make way for younger management. The phasing of payment for a disposal does not of itself change its nature. In the absence of reliefs, the full proceeds would be taxable upfront. Also, the payment should not be defined a a contingency that cannot be quantified at the beginning e.g. a % of profits. Such payments are the disposal of a separate right and are not chargeable business assets for retirement relief. Relief can apply to share buy-backs Revenue require the retiring director not to have an interest in the company after the buyback. Their manual states that directorships after buyback would make it "unlikely" that the trade benefit test would be passed. The aim is to counter cash extraction while retaining real control Care would be needed in structuring any contract. It might be advisable to use a company to provide the directors services at an arms length price. Duties would clearly not have any vestige of controlling the originally company
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Answered on 12 August 2019 7:46 pm
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To qualify for the retirement relief the buyback must be for the benefit of the trade. The Revenue manual outlines the requirements in its Instruction manual www_revenue_ie_en_tax_professionals_tdm_income_tax_capital_gains_tax_corporation_tax_part_06_06_09_01_pdf Examples include to make way for younger management. The phasing of payment for a disposal does not of itself change its nature. In the absence of reliefs, the full proceeds would be taxable upfront. Also, the payment should not be defined a a contingency that cannot be quantified at the beginning e.g. a % of profits. Such payments are the disposal of a separate right and are not chargeable business assets for retirement relief. Relief can apply to share buy-backs Revenue require the retiring director not to have an interest in the company after the buyback. Their manual states that directorships after buyback would make it "unlikely" that the trade benefit test would be passed. The aim is to counter cash extraction while retaining real control Care would be needed in structuring any contract. It might be advisable to use a company to provide the directors services at an arms length price. Duties would clearly not have any vestige of controlling the originally company
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Posted by (Questions: 2, Answers: 157)
Answered on 12 August 2019 7:46 pm