Can a self-employed person sell his business to his own Ltd company and get Retirement Relief?

Brendan Burgess

Brendan Burgess

Founder
Messages
58,541
Mr X is self-employed and earns €100k a year. He pays 50% tax on profits over about €48k

I presume that the goodwill of the business is a qualifying asset for Retirement Relief purposes?

He sets up X Ltd which buys his business for €300k. Mr X pays no CGT as he gets Retirement Relief as he is over 55.

After the transaction X Ltd owes Mr X €300k

X Ltd pays Mr X €48k salary to use up his 20% tax bands.

He leaves the other €52k in the company and the company pays €6,500 Corporation Tax leaving X ltd with €45,500
X Ltd pays Mr X €45,500 in part repayment of the €300k debt.

Does this work?
 
Last edited:
He has a lifetime limit of €750k.

So if after 10 years, if he sells the company to a third party, does he get a further €450k relief?
 
I am interested in a response to this too. It's not something that is open to me but it's an interesting scenario.
 
Brendan Burgess said:
I presume that the goodwill of the business is a qualifying asset for Retirement Relief purposes?
Click to expand...

You'd need to describe what the business is and where the goodwill arises from. Are we talking genuine goodwill attaching to the actual business or only to the person?

There is a bona fide clause in the section of the legislation dealing with Retirement Relief.

According to Section 598(1)(f) TCA:

"Goodwill, shares or securities referred to in clauses (II) and (III) of the definition of “chargeable business asset” shall be treated as chargeable business assets where it would be reasonable to consider that a disposal of such assets is made for bona fide commercial reasons and does not form part of any arrangement or scheme the main purpose or one of the main purposes of which is the avoidance of liability to tax."

On the surface, based on the limited information, I'd expect a challenge to the above claim for retirement relief from Revenue.
 
Thanks @AAAContributor

It's an IT consulting business where he is the consultant. So it attaches to the person.

The transaction would be purely for tax purposes so it gets caught by that.

If he were selling the business to a company at arm's length, then it would be genuine goodwill.

Brendan
 
AAAContributor said:
You'd need to describe what the business is and where the goodwill arises from.
Click to expand...

Sorry to jump in on @Brendan Burgess's thread but this is potentially relevant to me too. In my case, the business is financial brokerage. I'm a sole trader and thinking about moving to a limited company format.

I suppose the value of my business is made up of two parts...
  • The capital value of recurring income. I've been trading for decades and there's a fair amount of recurring income from existing policies that are still in force. This recurring income should continue to be paid for some years whether I'm around or not.
  • The value of the business brand, website, my reputation etc. Most new business comes from referrals.
If I ignore all the second line and just value the business based on the recurring income which is tangible and not reliant on me, would Brendan's original post work?
 
@Brendan Burgess The strategy "works" mechanically only if the valuation of €300k is robust and supported by an independent professional valuation, and if the 10-year qualifying period for Retirement Relief is fully met. Without a strong commercial justification beyond "paying less tax," Revenue may apply anti-avoidance measures to treat the debt repayments as income.
 
Hi @j.paul.kelleher

Many thanks for your comprehensive post. With apologies again for jumping in on Brendan's thread, can I reply in respect of my own situation?
  • I'm 55 now. My plan would be to sell my limited company before I'm 70. But if I'm still having too much fun with it at 70, I note the implications on a possible later sale.
  • I posted above (post #7) about the composition of the value of my business. From reading your post, I take it that the goodwill aspect would not qualify for retirement relief. But a substantial part of the value of my business is the capitalised value of the recurring income. Would that element qualify for retirement relief?
  • Physical business assets are relatively low value - a car and some computer equipment, phones etc. I would have no plans for the company to invest in any assets. After business expenses and salaries (mine and staff) are taken out, my plan would be to put any surplus into a pension each year.
Thanks for any thoughts.
 
You must log in or register to reply here.
Back
Top