Receiving a gift or inheritance can often be a confusing time for people. On one hand they may have lost a family member or close friend while on the other hand they may have received a lump sum of cash, a property or even a business perhaps.

As with everything, getting a gift or inheritance comes with tax implications. In general, the person receiving the gift / inheritance will be subject to Capital Acquisitions Tax on its value. The rate of tax is currently 33%. 

However, there are some reliefs to reduce the tax burden in certain circumstances. The most common reliefs are set out below.

Thresholds
You only become taxable on the gift/inheritance received if the value of the total assets received in your lifetime from a particular group exceeds that groups threshold.

• Group A - a gift / inheritance from a parent - you can receive up to the value of €225,000 tax-free.
  
• Group B - a gift / inheritance from a son, daughter*, brother, sister, uncle, aunt or grandparent - you can receive up to the value of €30,150 tax-free.
  
• Group C - a gift / inheritance from anyone else - you can receive up to the value of €15,075 tax-free.

*In some cases, a parent receiving a gift from their child can qualify for the Group A threshold

Small Gift Exemption
Every individual can receive a gift of up to €3,000 per year from any one person completely tax-free. So get out there and start asking everyone for €3,000, you might just make a nice sum from it without paying any tax!

If a gift is covered by this exemption, that gift does not reduce your lifetime threshold, as outlined above.

Agricultural Relief
If you receive a gift / inheritance of agricultural assets, you may be entitled to this relief. Basically, if you qualify for the relief, the value for tax purposes will be reduced by 90%. Massive savings can be achieved if planned correctly.

Business Relief
Similar to agricultural relief, the value of the qualifying assets received as a gift or inheritance may be reduced by 90% for tax purposes. Again, there are plenty of conditions that must be satisfied but, with planning, the transfer can take place in a tax-efficient manner.

Favourite Niece / Nephew
This relief works to allow a niece / nephew avail of the higher Group A thresholds when receiving a gift / inheritance of business assets from an uncle / aunt. There are conditions that need to be satisfied to qualify.

Dwelling House Exemption
A person can receive a gift / inheritance of a house completely tax-free providing certain conditions are fulfilled. Basically, the person receiving the house must have lived in the house for three years prior to receiving it and must not own, or be entitled to, another dwelling house. The person giving the house must also have owned the property for the previous three years.

If you have received a gift / inheritance recently, or if you are planning one, get in touch to discuss the most tax-efficient way of receiving it. Otherwise, start sucking up to all your friends and family to see if they'll hand over that €3,000 tax-free!

Over the last 18 months or so, Ireland has seen a massive growth in new businesses starting up. The Irish Times recently reported that an average of 107 start-ups were formed every day in May of this year. This is an incredible statistic. Obviously, a lot of these start-ups are probably investment from other countries but the growing confidence in those that maybe lost their jobs in the last few years is very evident. It's great to see people taking a chance to make their dreams a reality.

Your product / service

There are plenty of things to consider when you are starting a business. The first, and most obvious, is considering if there is a market for your product or service. You may not be offering something mainstream but that doesn't mean that there isn't a market for it. Do your research on-line and talk to people and you will quickly figure out where some issues may arise. 

Business plan

The next logical step is to develop a business plan. Some people see a business plan as a complete waste of time when you could actually be starting your business. I will admit that the financial projections in most business plans are often based on nothing but there is a huge benefit to be gained. Compiling a business plan will force you into thinking through every facet of the business, be it the number of employees you'll need, the machinery you need or how you intend to attract customers. Your financial projections may not be realistic but by just preparing the plan you are showing commitment to the business and you will have a general idea of where you want it to go.

Structure of the business

As part of the business plan, you will also want to consider the legal structure of this business. Will you be a sole trader? Will you be in partnership with others? Or perhaps you want the business to trade through a company? There are benefits and disadvantages to all of these structures and there is no one-size that fits all. The deciding factors are usually:

1. The costs of setting up a particular structure,
2. If the business wants / needs to attract external investors,
3. The tax advantages / disadvantages, and
4. Personal exposure to liability.

Costs
In general terms, it is very cheap to set up as a sole trader. You just need to register for tax and register your business name. A partnership is similar but may cost a little more if you want to have a partnership agreement drawn up by a solicitor. A company, however, has some registration costs involved and there would be additional accounting fees for compliance with tax and the CRO.

External investment
If you intend to attract external investment from others, it is likely that a company is the way to go. However, it could also be structured as a partnership but it is unlikely that a professional investor would go down that road.

Tax advantages / disadvantages
There are tax advantages to all the different structures. As a sole trader, if you make a loss at the beginning, you can offset this loss against any other income you may have and potentially receive a refund of tax. The same applies to a partnership but the losses are apportioned between the various partners in the business. A company on the other hand has a very attractive tax rate of 12.5% for trading income (vs a top rate of 52% income tax as a sole trader / partnership). Also with a company, there are greater opportunities to tax-efficiently fund your pension.

On the flip side, if you trade as a sole trader or a partnership, all of your profits will be taxed up to a rate of 52% regardless if you take the money out of the business or not. However, if it is a case that you need to extract all profits from the business for your own personal costs, you will still be taxed at rates up to 52% which, in most cases, would make a company a waste of time. For a company to be worthwhile, there needs to be a level of profits that remain within the business and not extracted as salary.

Liability
When operating as a sole trader or a partnership, if something goes wrong and someone takes legal action, they are taking that legal action against you personally and all of your personal assets are on the line. A limited company however, offers limited liability to the shareholders (i.e. they are only liable for the amount of their shareholding in the company). In recent times, however, the corporate veil can often be lifted where the shareholders / directors of the company have acted in a negligent manner meaning that it comes back to them personally again.

It must always be remembered that, when setting up a company, you have certain duties that you must carry out as a director (e.g. always act in the best interest of the company etc.).

VAT & PAYE

Depending on the level of sales that you project for the first twelve months and the product / service you are providing, you may be required to register for and charge VAT to your customers. For services, you must register for VAT if your sales in the next 12 months will exceed €37,500. The corresponding threshold for the sale of products is €75,000.

Even if you don't think you will exceed this amount, it can often be in your best interest to elect to register for VAT so that you may reclaim VAT on your business purchases, thereby reducing your overall costs. This is generally only advisable where the majority of your customers would also be VAT registered.

VAT can be a very complex area. If you are not sure, get advice from a professional.

If you are going to have employees in your business, then you must also register for PAYE. On pay day, you will then deduct taxes from each employees wages and pay that amount over to Revenue. Two pieces of advice I give to everyone about PAYE:

1. Never agree to pay an employee a net amount (i.e. €10 per hour after tax). I say this because, you never know their own personal tax situation. If they were married, their spouse may have all of the tax credits and bands which would mean the gross wage cost to you could be over double what you agree to pay them after tax. Always agree on a gross wage from which tax will then be deducted.
2. As much as possible, make sure that you are calculating the PAYE correctly. It is the employer's responsibility and if it is not done correctly, Revenue generally come knocking on the employer's door, not the employee's. If you are not comfortable with it, get someone who know's what they are doing. It will save you in the long term.

Get cracking with your business

After this, you are probably ready to get your business started. Now it's time to make your orders, get customers on board and get all your marketing work done. 

It's great to see people taking a step and setting up their own business. It can be frustrating at times, of course, but it can also very fulfilling. There will be plenty of things that you can't do or can't do well, everyone experiences it. Recognise these weaknesses and build a team around you to plug those holes. You are much more valuable to your business when you concentrate on your core skills.

Now, it's time to go out there and do it.

If you have any questions or criticisms, just leave a comment below. Would be great to hear some of your thoughts and stories.