Favourite Nephew/Niece Relief: Inheritance Plan for Business Owners

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Business owners often aim to transfer their business assets to the next generation, typically passing them on to their children for continued family business management. 

However, sometimes the most suitable person to take over the company’s operations is a niece or nephew who has been actively involved in the business.

In rural families, especially, there is a notable connection between aunts or uncles and their nieces and nephews. In instances where farmers without children wish to preserve their land within the family, they may consider passing the business on to a niece or nephew as the next of kin.

Certainly, these farmers may also contemplate transferring the farm to their surviving siblings instead of a niece or nephew. From a tax planning perspective, opting for the transfer to a nephew or niece could be more advantageous.

Nephew or Niece Qualification Criteria

In the context of this relief, you qualify as a nephew or niece if you are:

  • The child of the disponer’s brother
  • The child of the disponer’s sister
  • The child of the disponer’s brother’s civil partner
  • The child of the disponer’s sister’s civil partner

Eligibility Criteria for the Nephew/Niece Relief

To qualify for the relief, you need to have been employed by the disponer for the five years directly preceding the receipt of the gift or inheritance. During this period, your work commitment should have exceeded either:

  • 24 hours per week at the business location, or
  • 15 hours per week at the business location, provided that the business is exclusively operated by you and either the disponer or the disponer’s spouse or civil partner.

Note that the relief specifically applies to assets used in the business, with the Group B threshold applicable to non-business assets. 

If the gift or inheritance includes both business and non-business things, you have to allocate the liabilities between the two types of assets.

Tax Advantages

Capital Acquisitions Tax (CAT) is a tax imposed on gifts and inheritances you receive from others, such as family members or friends. The amount of tax you pay depends on the value of the gift or inheritance and your relationship with the person giving it.

There are group thresholds to determine the amount of tax payable. These thresholds vary based on your relationship with the person giving the gift or inheritance. The closer the relationship, the higher the threshold, meaning you can receive a larger amount without paying tax.

Current CAT Thresholds (from 9 October 2019)

Normally, gifts or inheritances between uncles/aunts and nephews/nieces fall into group B, attracting higher tax rates.

The nephew and niece relief enables the use of the Group A threshold, leading to a more advantageous tax treatment.

It’s a much more tax-efficient transfer of assets within the family, preserving wealth for the next generation.

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Example Favourite Nephew/Niece Relief

Let’s consider an example of a nephew inheriting his uncle’s business in Ireland, comparing the taxes with and without the favourite nephew/niece relief.

Scenario without Favourite Nephew Relief:

Uncle’s Business Value: €1,000,000

Group Threshold (Group B): €32,500

Taxable Inheritance: €1,000,000 – €32,500 = €967,500

Tax Rate: 33%

Tax Payable: €967,500 * 0.33 = €319,725

Scenario with Favourite Nephew Relief:

Uncle’s Business Value: €1,000,000

Group Threshold (Group A): €335,000

Taxable Inheritance: €1,000,000 – €335,000 = €665,000

Tax Rate: 33%

Tax Payable: €665,000 * 0.33 = €219,450

Savings with Favorite Nephew Relief:

Tax Savings = Tax Payable without Relief – Tax Payable with Relief

= €319,725 – €219,450

= €100,275

The nephew would save €100,275 in taxes by using the Favourite Nephew/Niece Relief when inheriting the business. 

It’s recommended that you speak with one of our financial advisors to obtain the most precise and current information tailored to your unique circumstances.

Shares and Preferred Nephew or Niece Benefit

You may be eligible for this benefit if you inherit or receive a gift of shares from a private company. The company must qualify as a private trading company where the giver serves as a director and holds control over the company.

Get a Tax Efficient Planning Quote with True Wealth

Obtain a tax-efficient planning quote with True Wealth and unlock the potential benefits of our expert guidance. 

At True Wealth, we understand the nuances of tax-efficient planning, and our team can provide invaluable assistance in navigating through strategies such as favourite nephew/niece relief. 

Gain further insights on how to avoid gift and inheritance tax in Ireland by reading our article.

We at True Wealth are experts in personal and business financial planning, retirement and pension planning, pension tracing, savings and investments, protection, mortgages, and wealth management.

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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.

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