Podcast Ep 234: As the deadline looms for Capital Acquisitions Tax, accountant and entrepreneur Johnny O’Callaghan wants to make compliance simple.
The old adage that there are only two certainties in life – death and taxes – could not be more true as the 15 December deadline for Capital Acquisitions Tax (CAT) falls due.
While this sends shivers up the spines of anyone from the PAYE worlds who is unfamiliar with filing tax returns, an enterprising accountant and entrepreneur called Johnny O’Callaghan has the answer.
“There’s actually nothing worse than having a tax liability, apart from finding out that you might not have actually had to have that liability in the first place if people had been able to do a bit of planning”
O’Callaghan has launched Ireland’s first gift tax planner called Taxplanner.ie.
This new online service is designed to help individuals and families in Ireland navigate the complexities of CAT- commonly known as Gift Tax or Inheritance Tax.
Johnny is also managing director of John O’Callaghan Ltd which brings over 40 years of expertise as chartered certified accountants, tax advisers and business consultants.
Leave a gift, not a burden
He said that while most taxes are unavoidable, a bit of planning and preparation could help offset what could be a hefty bill.
No one likes to think that one day they will depart this mortal coil. But equally no one wants to saddle loved ones with expenses after their time, especially if there are ways to efficiently reduce tax liabilities.
“Like you said, if there’s two certain things in life, it’s debt and taxes. And unfortunately, what we found for an awful lot of people was that when they were dealing with a death as part of the probate process afterwards, they’d find out that they had tax liability. There’s actually nothing worse than having a tax liability, apart from finding out that you might not have actually had to have that liability in the first place if people had been able to do a bit of planning.
“So it’s what we want to do, is provide information to people in the first place before the event actually happens. So that’s before the gift or inheritance takes place. Because after that, there’s very, very limited options as to what you can do.
“But beforehand, it’s giving people the information to say, look, did you know these reliefs are available? How can you optimise those? How can you make sure that the people that you’re giving a gift to, or if you’re receiving the gift or inheritance, how do you make sure that you qualify for those to minimise the tax that’s there?
“So since these reliefs are there, they’re very generous if they’re used correctly. And it’s the information for people to say, this is how you can use them after the fact, then we can complete all the tax returns and make sure that any reliefs that do need to be claimed are claimed for you.”
Depending upon the inheritance in question, some CAT tax liabilities can be minimal while others can place an enormous burden on the beneficiaries from an estate.
“In some cases you can have a family business or farm or home and it could have a tax liability that people can’t afford themselves, so they either have to take out a mortgage on a property and be saddled with that for years or actually sell the farm or business. So it can create more problems and heartache for people that the person who left the gift or inheritance had never intended.”
He said it is worthwhile for people to familiarise themselves with the various thresholds. After the most recent Budget, parents leaving an inheritance or providing a financial gift to their children can have a lifetime value of €400,000 tax-free. For blood relatives such as siblings, grandchildren or cousins, the threshold is €40,000 and for all other beneficiaries there is a €20,000 tax-free threshold.
There is also a €3,000 per year small gift exemption that anyone can use. For employers gifting employees there is a €1,000 tax-free threshold. From 1 January 2025, the latter threshold will increase to €1,500.
As part of the probate process, O’Callaghan said that if there is a tax liability on a gift or inheritance, the Revenue Commissioners will notify the beneficiary and their solicitors. He advised people to file a tax return as soon as they can.
“Feigning ignorance is quite hard to do. Ultimately, if you don’t file your tax returns or you file them late, Revenue can charge you penalties on the late filing of surcharges, depending on how late it was in penalties.”
O’Callaghan said he was motivated to establish Taxplanner.ie due to the constant recurrence of inheritance tax issues.
“We would be a normal accountancy practice where we do your standard tax returns and accounts, and a lot of our base would be farmers. So one of the things that we’d naturally be doing with them would be succession planning. And the great relief that’s in there for farmers is Agricultural Relief, and that’s basically where 90% of the value of the farm can be removed from the tax threshold, so that it’s only actually valued at 10% of its value once you meet certain conditions for it. So you’d be trying to make sure that the farmers all did this.
“Then, for businesses as well, there is a Business Relief, where you get the same 90% reduction in the taxable value of the business. So we would have been doing a lot of that.
“And then we would do a good bit of work with solicitors ourselves. And they would, thankfully send us across work from clients who come into them who wouldn’t have an accountant when they said, ‘Look, you should get professional advice.’ So that’s where we started doing a good bit more capital, acquisitions tax work.
“And it just came to me when I was thinking about it, what can we be doing to help people out more? I was thinking let’s set up a business that just really deals with it, because when you go looking for this advice online, if you Google it, you get the Revenue web page, and while it’s very informative, it’s not user friendly. It’s not where people can go in and ask questions.”
And that’s where Taxplanner.ie comes in. “The first thing people come across is often the paper return and people have a fear that if they do it wrong, something bad is going to happen to them. So we’re here to help.”
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