Passing the Family Business to the Next Generation
By Bruce Stanley, Tax Advisory Partner
Family businesses are the bedrock of Ireland's communities and its economy, accounting for around 64% of all firms. Many of them have invested carefully in succession, with a view to passing the business on to the next generation.
Succession within a family brings complications that a third-party sale simply doesn't. Where ownership passes between generations, the reliefs available to the exiting owners and to the succeeding family members have to be considered together. In a sale to an outside buyer, the vendor is rarely concerned with the purchaser's tax position or how the acquisition is funded; the priority is maximising the return and claiming the reliefs designed to reward entrepreneurs for their investment, whether that is Revised Entrepreneurs' Relief, Retirement Relief or the Participation Exemption.
Where the business passes to the next generation, the exiting owners are seldom focused on achieving the best price, and the transfer often takes the form of a gift. The reliefs that matter here include those available to successors, such as Business Relief and Agricultural Relief. Stamp duty will almost invariably arise on a lifetime transfer of assets, and it can be prohibitive where the business holds commercial property.
That said, the exiting generation may still want some reward for a lifetime's work, and to claim the reliefs available to them. There are ways to achieve this without placing an additional burden on the successors, such as funding a company buy-back of shares.
Alongside the financial and tax questions sit the emotional ones, and they are every bit as important. Family dynamics vary enormously. Some family members will be deeply invested in the business; others will want to follow a different path entirely. How family assets are divided and controlled deserves careful thought, and honest conversation.
Managing key relationships and handing over control take planning, and a long lead-in time tends to pay dividends. Where the incoming owners have the skills and the confidence to help the business prosper, the handover is easier for those stepping back and far less daunting for those taking on responsibility for the future.
Every business has its own nuances, but in family succession the goals are usually much the same: financial reward, tax efficiency, fairness, and confidence that the business will continue to thrive. There is no guarantee of achieving all of them, but the families who plan early, communicate openly and prepare professionally consistently achieve the best outcomes.
Key Considerations
- Start planning early
- Understand the tax implications
- Separate ownership from management
- Communicate openly with family members
- Invest in successor development
- Seek expert advice before decision are made
If succession is something you are beginning to think about, the HLB team has many years of experience guiding owner-managed businesses through this important stage of the business life cycle. Reach out to Bruce Stanley at [email protected] for a confidential conversation.
