Favourite Niece/Nephew Relief - keeping your business in the family

Very often, small business owners wish to pass on their business assets to the next generation in order to keep their business in the family name.

Usually this is done by passing the assets on to your children who continue to run the business in your place.

Sometimes, however, it may be that it is a niece/nephew of the business owner who has been involved in the business and is the one looking to take on the mantle of running the business.

The major disadvantage to this scenario from a Capital Acquisitions Tax (CAT) viewpoint, also known as Inheritance/Gift Tax, is that a child can receive €310,000 (known as the Group A Threshold) in their lifetime from their parents without triggering CAT, whereas a niece/nephew can only receive €32,500 (known as the Group B Threshold) from their aunts/uncles before being liable to CAT at a rate of 33%.

There is a relief from CAT known as Favourite Niece/Nephew relief which can potentially relieve this burden in respect of business assets being passed on to your niece/nephew.

If your niece/nephew qualifies for the relief they can use the Group A threshold usually granted to children in respect of any business assets received through a gift/inheritance from their aunt/uncle.

Your nephew or niece must have worked for you for the five years immediately before they receive the gift or inheritance either:

• for 15 hours per week in a small business (run by you and your spouse or civil partner), or
• for 24 hours per week in a larger business (that is, business where there are other employees).

The relief applies only to assets used in the business. It does not include investment assets which are taxed under normal rules.

Example:

Matthew Jones inherits the estate of his uncle. The inheritance consists of

1. Business assets i.e. garage with a market value of €250,000 and stock-in-trade valued at €30,000, and
2. Non-business assets of €75,000

Assuming Matthew qualifies for “favourite nephew” relief in respect of the business assets i.e. the garage and stock-in-trade, as this is below the Group A Threshold of €310,000, he will not have any CAT to pay on these assets (assuming he has not previously received any gifts/inheritances).

He will, however, be liable to CAT on the non-business assets as their value is in excess of the Group B Threshold of €32,500.

Date published 24 Aug 2017

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.