Opinion: ‘Three Financial Planning Tips for Business Owners’, Colm Power, Director, Financial Planning, Davy Private Clients and Barry Kennelly, Director, Tax and Wealth Structuring, Davy Private Clients.

It’s fair to say that the impact of Coronavirus on our lives has been enormous and unfortunately continues to wreak havoc as we navigate this new unchartered territory. Business and personal financial asset values have fallen at a rate faster than most of us have ever seen or can recall in our lifetime, presenting challenges for business owners as they come to grips with the impact on their investments. At a local and personal level, we continue to experience stress and anxiety levels from this massive evolving change and upheaval.

In a period of such unprecedented uncertainty for businesses and with so many things are outside of our control, it may help our levels of anxiety to exert some level of influence on aspects of our lives which we can alter.

Social distancing has meant that many of us find ourselves limited to desk-bound or house-based activities. Having to spend so much unexpected time at home, though daunting, can be put to some good use. It might be an opportunity to allocate some time to completing things we’ve put on the long finger.

One thing definitely worth considering at this time is your financial plan. Similar to a business plan, a financial plan is unique to you and can help keep you on track by allowing you to reposition in times of uncertainty or market volatility. Our view has always been that you should continue to review and refine your financial plan and to take appropriate actions where needed. This may prompt taking action which would not have been on your agenda, a few months ago.

Here are three things worth considering for business owners:

1. Defer non-essential drawdowns

The worst time to draw money down from a portfolio is when assets have fallen significantly. For some, there won’t be any other choice, as business requirements or lifestyle needs may dictate an immediate requirement for funds.

However, not all drawdowns are essential in the short term and any portfolio withdrawals or encashment from invested assets should be reviewed. Deferring for a period of time may allow for asset recovery and access at a more suitable time.

For example, for business owners with an Approved Retirement Fund (ARF) who are taking regular distributions, it could be worthwhile checking deposit cash balances to see if there are sufficient balances to cover lifestyle expenses for a few months.

Similarly, it may make sense to defer drawing retirement benefits from some pension pots where there is not an immediate requirement for funds (the exception to this is larger pension funds impacted by tax-efficient limits (refer to our next point below)).

2. Retire pensions that are close to the tax-efficient limit

The bull market that followed the global financial crisis provided plenty of growth to pension savers in the time period since. Pensions have always provided a simple and tax-efficient means of extracting cash from a business tax efficiently and many of our clients would have seen their pension grow over the €2m tax-efficient limit, known as the Standard Fund Threshold (SFT).

There is an immediate 40% tax charge when drawing pension benefits on any chargeable excess amount above the tax-efficient limit, although a credit available from tax paid on retirement lump sums can increase the efficient value to €2.15m before 40% tax arises.

A dip in pension values may present a good time for those with larger pensions to tax efficiently draw benefits as the market movements may have eliminated some or all of the amount subject to punitive tax.

3. Consider lifetime asset transfers

Before making provision for the next generation, it is critical that clients ensure their own financial requirements are met, both now and in retirement. Passing assets to the next generation should only be considered when they have that level of comfort. For those for whom this course of action still makes sense, it may be timely to act sooner rather than later.

A time of low asset values typically means that a transfer will give rise to less exposure to capital taxes i.e. capital gains tax (CGT), capital acquisitions tax (CAT) and stamp duty. The hope is that the growth in asset values will be in the hands of children when values recover, rather than being subject to tax at some point in the future. Also, it is possible to tax efficiently transfer wealth to the next generation in such a way that control can be maintained by parents (through various estate planning structures such as family partnerships).

Of course, there is also the possibility that the rates of tax will increase in the future which may also be a further reason to accelerate action. In addition to the potential increase in tax rates, it is also possible that the current CGT and CAT reliefs which facilitate the transfer of business assets from one generation to the next could be restricted. For these reasons, it may also be prudent for families who have been considering putting a business succession plan into place to do so now.

At Davy, our strength lies in the close working relationships we have with our clients. In recent years, we have invested heavily in highly skilled people to ensure that we are well-positioned to plan for your future while mitigating risks. Our thinking is balanced and long term. We provide frequent accessible financial planning and wealth management advice which is able to weather the storm and adapt to market forces.

If you need any information, advice or reassurance during these challenging times, why not request a call with one of our advisers today. Call us on +353 1 614 3346 or visit www.davy.ie/personal

This information is based on Davy’s understanding of current tax legislation in Ireland and is subject to change without notice. It is intended as a guide only and not as a substitute for professional advice. You should consult your tax adviser for the rules that apply in your individual circumstance. The information in this article is for illustrative purposes only and does not purport to be financial advice as it does not take into account the investment objectives, knowledge, and experience or financial situation of any particular person. You should seek advice in the context of your own personal circumstances prior to making any financial or investment decision. There are risks associated with putting a financial life plan in place. There is no guarantee that by having a financial life plan in place, you will meet your objectives.

J&E Davy, trading as Davy and Davy Private Clients, is regulated by the Central Bank of Ireland.


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