In a timely piece given the fast-approaching Budget and the end of the tax year for the self-employed and those with non-PAYE incomes, The Sunday Independent details some of the ways still open of minimising tax. When the Government says there will be no increase in income tax, does anyone really believe it? Well, like the angel dancing on the head of the proverbial pin, it may be literally true but in effect chances are everyone will be paying more tax next year, whether in the form of levies, changes to reliefs or revised tax bands.

“There are clear indications in last November’s Four-Year Plan that more tax reliefs are to be abolished or curtailed,” said Brian Keegan, director of taxation of Chartered Accountants Ireland. “As the amount collected in tax has to rise, the government promise not to increase income tax rates cannot be met without restricting tax allowances further. Tax relief for pension contributions will reduce in the coming years. Other reliefs under threat might include capital gains tax retirement relief.”

So, with less than three months to go, what to do?

Sell Your Business To Your Children

‘Do it while you still can’ seems to be the message here.

“The Government has flagged that this area will be significantly overhauled in the Budget,” said the Indo,  Capital Gains Tax (CGT) retirement relief is one of the more lucrative reliefs.”

At present, CGT retirement relief allows you to sell or transfer your business to anyone for up to €750,000 without paying any CGT. If you didn’t qualify for this relief, you would have to pay 25% tax on the asset’s transfer value. You must be over 55 and have owned the business for 10 years to qualify. A married couple could sell or transfer a business worth €1.5m without having to pay CGT.

If you sell or transfer a business to your children, there is no upper limit on what you can sell your business for without having to pay CGT, subject to certain conditions. For example, the children must retain the company shares for at least six years.

If you are a self-employed owner of a business you can also reduce their current tax bills by selling shares in the company to your children, who could then you over time. This effectively allows the proceeds from company shares to become a future salary for a parent.

“By selling their company shares to family members and getting paid in instalments, they can replace the cost of a pre-tax salary with a tax-free payment. In certain circumstances, this can save over €1m, even in relatively modest firms.

“Needless to say, this requires careful planning and agreement to ensure everyone’s interests are protected. Ultimately, it is up to the business (now owned by the children) to generate the funds to pay off the parents over time. This sometimes means the parents sell the shares not to the children directly but to a company formed by the children.”

Pour Money Into Your Pension

The limit for reliefs on pension contributions in a single year still stands at €115,000. You can claim up to 41% tax relief on this figure and an additional 11%  if you make these contributions through a company rather than personally.

Most expect either the maximum reliefs available or the percentage reliefs to be reduced in the forthcoming Budget, so time is of the essence for those who can afford to take advantage of the present situation.

In fact, the clock is ticking even faster because it is dictated by the pay-and-file deadline at the end of next month. The pension contributions have to be made before filing a 2010 tax return as they are deemed to be for that tax year. There is an additional advantage that if your company is liable for corporation tax; it can reduce this bill by making additional payments to the pension schemes of key employees.

Set Up Your Own Company

If you’re unemployed and have been toying with the idea of starting your own business, then do it quickly. Start-ups with corporation tax bills of less than €40,000 a year are not liable for corporation tax for the first three years in business provided they create new jobs and carry out a new trade.

The relief runs out at the end of 2011 and there is no guarantee the present Government will extend it.

Employ Family

You can save a lot of money by keeping it in the family. A sole trader who makes €50,000 profit this year would save around €7,000 in tax by hiring a spouse and two teenage children to work for him or her. Instead of paying €10,400 in tax, he or she would pay €3,400.

If you want further information on these or other tax planning structures do not hesitate to contact Anthony Casey at Noone Casey


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