w
w
.f
Newsletter
FDC Accountants
Tax Consultants Ltd.
Management Accounts,
Interim Accounts, Personal
Taxation, V.A.T., P.A.Y.E.,
Bureau, Consultancy,
Budgeting, Loan Negotiation/
Restructuring, Grants,
Business I.T. Solutions,
Agri-Consultancy.
FDC Financial
Services Ltd.
Investment Management,
Stock Broking, Pension
Negotiation (Personal &
Corporate), Savings Plans,
Life Assurance, Mortgage
Applications, Commercial
Lending/Restructuring.
FDC Tax Department Ltd.
Income Tax Planning, Capital
Acquisitions Tax/Estate
Planning, Capital Gains Tax,
Corporation Tax Planning,
Corporate Structures,
Company Formation, Other
Consultancy.
FDC & Associates
Auditing, Management
Accounting, Consultancy,
Payroll, Company Formation,
Company Secretarial,
Corporate Structures.
.i e
Autumn
2016
dc
Farming
w
FDC GROUP
www.fdc.ie
02General Manager’s
Introduction
Jack Murphy
03Basic Payment
Scheme & Greening
Joseph Collins
04ENTREPRENEUR
RELIEF
General Manager’s Introduction.
The formation of FDC in 1973 coincided with our
accession to the then EEC. Funding under the
Common Agricultural Policy, in particular, has been
utilised to transform Irish agriculture into a worldclass industry. These strengths, however, are being
repeatedly tested.
The recently published Teagasc 2015 farm viability
survey provides stark evidence of the pressures
facing Irish agriculture. There are an estimated
11,300 viable cattle farms and 12,000 viable dairy
farms nationally. Together with an estimated 3,300
viable sheep farms, these represent 37% of all
farm enterprises. Those farms deemed ‘non-viable’ under Teagasc’s criteria are only
sustainable due to off-farm income. That the percentage of viable dairy farms declined
from over 80% in 2014 to 76% in 2015 is testament to the effect of protracted low milkprices. Such trends will be evident well into 2016.
EDMOND MOLONEY
07 PLANNING FOR A
BETTER FUTURE
Michael McCormack
09Intestacy: a lost
opportunity in
Estate Planning
Barry Lonergan
11
FDC Banking
Support Services
Dave Sheane
14 Appointments
15 Key Agricultural
Commodity Graphs
Regional and sectoral disparities do not obscure the fact that all Irish farms are now at
the mercy of commodity price and currency fluctuations. Monitoring of efficiency and
structuring of cash-flow have become indispensable skills for Irish farmers.
Ambitious output and export targets set by the Dept. of Agriculture under Food Wise
2025 cannot be met without corresponding increases in income at individual farm level.
Budget 2017 is an opportunity for the state to play its part.
Increased funding for TAMS II, renewed Beef Data and Genomic Programmes and
enhanced agri-environment schemes are required to meet demand across all sectors.
Current eligibility restrictions for income-averaging need to be revisited. Support for
intergenerational transfers and farm restructuring require to be guaranteed for future
years. Certainty in relation to key reliefs due to expire in 2017 will allow farm families to
plan prudently. All of these matters have acquired increased urgency as a result of Brexit.
Irish agriculture needs to be primed for any potential disruption to our €4.2bn annual
agri-exports to the UK.
It will be an early test of our ‘new politics’ if the government can deliver a budget which
supports our largest indigenous industry at a critical moment. Investment in agriculture
has proven repeatedly effective in sustaining rural communities and supporting those
towns and villages where the recovery remains until now strikingly absent. Individual
budget measures often have a disproportionate impact on rural communities. For
example, the proposed increase in excise duty on diesel would in real terms nullify
many of the commitments to rural Ireland in last May’s Programme for a Partnership
Government. Whereas the need for capital investment is evident to anyone familiar with
rural Ireland, a precipitous discarding of budgetary discipline must be avoided.
Since 1973, FDC has been to the fore in assisting our clients meet the challenges and
opportunities arising. We are proactive in identifying new services and making these
services available to our clients locally (these are outlined elsewhere). Our continued
recruitment and branch development reflects our corporate confidence in the farming
sector. This increased scale and scope is, however, ultimately informed by our association
with our individual clients and we remain continually appreciative of their support.
Jack Murphy – General Manager.
2
| FDC Group
Basic Payment Scheme & Greening
Joseph Collins, FDC Kanturk
2015 was a benchmark year in terms of Single Farm
Payment reform. We saw the implementation of a
number of new measures that have changed the
landscape of farm’s payments indefinitely.
Firstly the Single Farm Payment has been broken down into
two new schemes. These are the Basic Payment Scheme
or BPS and Greening. The Basic Payment Scheme is the
new single farm payment and is the portion of the payment
which is fully owned by the farmer. Similar to the old scheme
a farmer needs to declare 1Ha of eligible area in order to
activate 1 entitlement. These new entitlements are worth
approximately 70% of your previous SFP entitlements.
The balance of the value of the old entitlements has now
been transferred into the Greening. This Greening accounts
for approximately 30% of the value of the old entitlement.
The greening measure is specifically designed to promote
crop diversification on tillage farms. Any grassland farmer
who has more than 75% of their holding in grass is seen
as being ‘green by definition’ and automatically qualifies
for the greening payment. However, this portion of the
payment is subject to fulfilling these Greening measures on
an annually basis.
Greening directly affects farmers who have either more
than 10 hectares of tillage or who exceed more than 30
hectares of tillage with the tillage area being less than 75%
of the total area. The new Greening Scheme or payment
is going to have a major role in transactions involving
entitlements into the future.
The implementation of convergence in the Basic Payment
Scheme is introduced in an attempt to increase lower value
entitlements by effectively reducing higher value payments.
•
By 2019 all entitlements will have a minimum value of
60% of the national average entitlement value.
•
Farmers who hold entitlements with an initial value
over 100% of the national average entitlement value
will see their value decrease over the period of
the scheme. The reduction will be determined by
the amount needed to fund the increase for those
•
entitlement value being increased.
In addition no farmer by 2019 will receive a payment
per hectare greater than €700.00 (Basic Payment
plus Greening).
Factoring in all these changes, transferring entitlements is
an area that will become very important. The old method
of consolidating or “stacking” entitlements is no longer
available. Farmers will have to be extremely careful that
all entitlements are being used if, for example, rented land
is no longer available. A farmer who is unable to draw
down or ‘activate’ entitlements for two consecutive years
will lose these entitlements to the national reserve. So if a
farmer has 10 entitlements and in year 1 they only submit 7
hectares and in year 2 they submit 8.5 hectares because for
two consecutive years they did not activate 1.5 entitlements
those entitlements are recycled into the National Reserve.
To counteract this, for the first time entitlements can
now be leased without land which is a change for the old
system. Strong demand exists for leased entitlements,
reflecting an increase in the exclusion rate of non-eligible
land and the reluctance of some farmers to activate
entitlements on rented land. As demand surpassed supply
in early May 2016, 70-80% of the value was paid for oneyear leases on entitlements worth €400 - €500. Most of the
available entitlements were in the €200- €300/ unit value
and leased at 60-65% of value. For leases of entitlements
for up to four years, prices of 65% of value were recorded.
Entitlements can still be sold or gifted, in fact there are
several different methods of transferring entitlements
including;
•
Inheritance
•
Gift
•
Lease
•
Sale
•
Scission (division/partnership)
•
Merger/ Partnership
•
Change of legal Entity (Company)
•
Change of registration details of herd-number. (e.g.
Adding a name to the herd number)
Autumn Newsletter 2016
| 3
www.fdc.ie
When considering trading entitlements there are two main
clauses in effect this year. Firstly any entitlements sold in
2016 without land will be subject to a 50% claw-back. For
example if you sell 10 entitlements, regardless of their value
5 of those entitlements will be taken off you and recycled
into the national reserve. Entitlements sold with land, gifted
or inherited are not subject to this claw-back. In addition to
this it is only the BPS portion of the payment is yours to sell.
It is up to the purchaser to then qualify for the remaining
30% Greening themselves. The sale of entitlements has
become much less attractive for this reason. If you compare
the sale of an old Single Farm Payment entitlement which
was traded at full face value without a claw back, to
now only being able to sell 70% of the new entitlements
(BPS portion), a potential claw back of half that 70%
and pay 33% Capital Gains Tax on the remainder, leasing
entitlements looks set to be the most beneficial method.
The second important issue when transferring entitlements
relates specifically to new entrants to farming who secured
national reserve entitlements in 2015. These farmers are not
permitted to transfer entitlements until such time as they
have fully completed the level 6 farming certificate.
In conclusion, it appears that trading of entitlements by
way of sale without land is a practise that is firmly in the
past. The introduction of leasing entitlements without land
seems to the preferred method of transaction in the short
term to avoid major claw-backs by the Department of
Agriculture. Gifting or inheritance of entitlements remains
unaffected as does incorporation, the formation of a
Partnership or the change of any registration details on a
herd number.
ENTREPRENEUR RELIEF CAPITAL GAINS TAX
EDMOND MOLONEY, FDC TAX DEPARTMENT
Background to Capital Gains Tax:
Capital Gains Tax (CGT) is chargeable on any gains arising
on the disposal of assets. Any form of property including
an interest in property (for example, a lease) is an asset for
CGT purposes.
Most business owners face an exposure to CGT when the
time comes to sell their business, pass the business to the
next generation, or, to simply retire.
The current rate of CGT stands at 33%. Therefore, any gain
made from the proceeds on a disposal of a business versus
the related cost on setup will be subjected to this rate.
When comparing the current rate to the relatively low 20%
rate in place prior to October 2008, the need to access any
available tax reliefs is paramount.
Retirement Relief:
A long standing relief from CGT has been in place for
farmers and business owners who wish to dispose of
their businesses, either to the next generation or to an
outside third party. This is known as ‘Retirement Relief’
under Section 598/599 TCA 1997. This title can often be
misleading, as the person(s) disposing of the business (i.e.
the disponer) does not have to physically retire. In the case
of a transfer of a farm/business to a child, the disponer may
continue to work on the farm/business if they so choose.
This is a very valuable relief as it can maintain capital in a
farm/business without having to suffer considerable CGT
liabilities. However, the relief is quite restrictive as, to qualify,
a person must have attained the age of 55 years and
owned/used the business assets for a period of 10 years.
Therefore, historically, a person wishing to sell or transfer a
farm/business had to satisfy the above criteria or suffer the
tax consequences. No relief existed for younger business
owners who may have wanted to ‘cash-in’ or move onto the
next venture.
4
| FDC Group
Entrepreneur Relief – Version 1:
Finance Act 2013 introduced a new relief from CGT,
aimed specifically at entrepreneurs, known simply as,
Entrepreneur Relief.
It is aimed at individuals who, in the period 1st January 2014
to 31st December 2018 reinvest the proceeds of disposals
of assets, made on or after 1 January 2010, in chargeable
business assets in new business ventures. The relief is
granted in the form of a tax credit against any CGT liability
arising on the ultimate disposal of the chargeable business
assets, more than three years after they were acquired.
The tax credit is equal to the lower of :
1. CGT paid on or after 1 January 2010 on the disposal of
a chargeable asset, or
2. 50% of the CGT payable on the disposal of the
chargeable business assets.
A “qualifying enterprise” is a micro, small or medium-sized
enterprise, and which –
(a) has not been carrying on any trade or profession, or
(b) has been carrying on a trade or profession for less
than seven years.
The minimum reinvestment in order to qualify is €10,000.
In the case of investment through a company each
shareholder must own not less than 15% of the shares in the
qualifying company carrying on the new business and must
be a full-time working director.
While this was a positive first attempt at the introduction
of CGT relief for entrepreneurs, it was viewed as
administratively complex and ultimately restrictive as it is
a time-bound relief and applies only after an entrepreneur
has made a second successful gain on asset disposals.
Entrepreneur Relief – Version 2:
Due to what appears to have been a relatively poor takeup of the initial relief discussed above, an extension to
Entrepreneur Relief was introduced in Budget 2015. The
relief will be granted subject to certain criteria being
satisfied. This version of the relief became effective from
the 1st January 2016.
The relief applies by reducing the standard rate of CGT
(33%) down to a special rate of 20% on a lifetime disposal
of chargeable business assets for qualifying gains of up
to €1 million. Therefore, if chargeable business assets are
disposed of and the full gain of €1 million is realised, the
relief can provide a maximum tax saving of €130,000.
It should be noted that where the limit of €1 million is
breached, any further gains are taxed at 33% for CGT
purposes in the normal fashion.
Conditions to qualify
The main conditions of the relief are as follows:
•
an individual must dispose of chargeable business
assets of a qualifying company,
•
the individual must be a relevant individual and,
•
where shares are being disposed of, the vendor must
be a qualifying individual.
To expand on the above:
A qualifying business can normally be described as
containing a trade or professional services, i.e. it does not
hold securities or other assets as investments, development
land or the development or letting of land. The qualifying
business assets must have been owned by that individual
for a continuous period of three years in the five years
immediately prior to the disposal of those assets.
Where a business is carried on by a company, individuals
seeking to qualify for the relief must own not less than 5%
of the shares in the qualifying company or 5% of the shares
in a holding company of a qualifying group. A holding
company means a company whose business consists
wholly or mainly of the holding of shares of all companies
which are its 51% subsidiaries.
The individual must have been a director or employee of
the qualifying company who was required to spend not less
than 50% of his or her time in the service of the company
in a managerial or technical capacity and has served in that
capacity for a continuous period of three years in the five
years immediately prior to the disposal of the chargeable
business assets.
Example of Entrepreneur Relief:
Mr. X established a trading company in 2012, owing 100%
Autumn Newsletter 2016
| 5
www.fdc.ie
of the shareholding. He worked on a full-time basis in the
company since its inception.
The company was sold in 2016 and the gain arising on the
sale of the shares was €2,499,900
Mr. X qualifies for Entrepreneur Relief as he meets the
specified criteria, namely:
•
The gain arose in 2016
•
owned for more than three years
•
sale of > 5% of shareholding
•
worked in managerial/technical capacity for three out
of the previous five years
Mr. X’s CGT liability will be as follows:
Capital Gai
Less: Annual Exemption
Net Capital Gain
€1,000,000 * 20% rate €1,498,630 * 33% rate
Total CGT payable
€
2,499,900
(1,270)
2,498,630
200,000
494,548
694,548
As can be seen from the above figures, as the €1 million
limit was reached, the balance of the gain was taxable at
33%. However, by applying the relief, Mr. X ultimately saved
€130,000 in CGT. Interestingly, the first version of Entrepreneur Relief is still
very much operational. Tax legislation now provides that if
the first relief, set out in S597A TCA 1997, gives a better result
than the revised version, the first relief will take priority.
6
| FDC Group
It has not been confirmed at this point whether a married
couple who are both involved in a business and who meet
the conditions will both qualify for the relief. However, if the
€1 million lifetime limit is fully available to both individuals,
this could potentially lead to a maximum tax saving of
€260,000.
Clarification is also required in relation to the interaction
with Transfer of Business relief for CGT. This provides that
where a business, together with the whole of its assets (or
the whole of its assets other than cash) is transferred to
a company by an individual as a going concern, wholly or
partly in exchange for shares, relief from CGT is given to
the extent that the consideration for the transfer is in the
form of shares. The charge to CGT on any gain arising on
the disposal of the assets of the business referable to the
shares can be deferred until the shares are disposed of.
The important word here is ‘deferred’, as, on a disposal,
CGT is technically payable by the individual who claimed
transfer of business relief initially. This begs the question
whether Entrepreneur Relief is available on the disposal
of a company having claimed Transfer of Business relief.
Further clarification from the Revenue Commissioners can
be expected in these areas in the near future.
Conclusion:
Great care is required to ensure that the various tax reliefs
to which business owners, farmers and entrepreneurs are
entitled, are claimed in full, especially in terms of wealth
management and estate planning. FDC Chartered Tax
Advisers are available throughout our branch network to
assist you in determining whether you may benefit from
Entrepreneur Relief.
PLANNING FOR A BETTER FUTURE
Michael McCormack, FDC Financial Services
As we are all acutely aware, we are living, in financial
terms, in a low interest rate environment – with the
probability that the status quo will remain for the
medium term at least. This impacts on all of our lives to
varying degrees with some winners i.e. tracker mortgage
holders, but with many more losers. The ‘losers’ in this
environment are a grouping not made up exclusively of
investors but any individual who has funds set aside for
the future, be it through traditional savings channels or
through investment in their private pension fund.
Our experience over the years at FDC has taught us that
most clients are satisfied in maintaining the purchasing
power of their funds over time. Historically, when interest
rates were higher over the years, this aim was met by
investing a certain amount of funds on deposit and
complementing this holding by looking further afield to
managed funds etc. to bring in further gains over the
client’s investment time-frame. We have now hit the ground
with a bang in our quest to maintain a client’s purchasing
power and have to look at further strategies to meet our
goal. In simple terms , whilst a client has to hold an ‘anchor’
investment in cash, he must now look at either taking on
risk to some degree or commit his funds for a medium term
period to try and earn a return that was previously available
to him on deposit in years gone by. In an investment arena
that is swamped in technical terms and all-new solutions to
investor’s woes, taking a step back to look at each client’s
own circumstances and exact requirements for their money
can make the picture look clearer than one would imagine.
In simple terms: If a client wants a full capital guarantee
on their funds matched with a certain guaranteed rate of
return they are confined to ‘investing’ in cash via a deposit
account. As we know now however, this placing of funds
in a deposit account is not a riskless ‘investment’ –because
at gross interest rates over 12 months of just 0.8%, you are
guaranteed to lose purchasing power of funds. But what do
we do? What are the solutions we as Financial Planners can
offer clients to address this issue?
Whilst focussing in this article on general solutions to an
investment problem, I will not specifically recommend
individual strategies or solutions but will focus on how
introducing a process or plan will help us build a roadmap
to offer a tailored investment option for all clients based
on their own circumstances. When you appoint FDC, you’ll
have a powerful partner on your side. Clients tell us they
find our financial planning process revealing, reassuring,
empowering and sometimes challenging. The main thing
is that you will be in safe hands. A great financial planning
relationship is built on honesty in both directions .Typically,
we will meet you at least a couple of times to ascertain
what’s important to you your commitments, your goals etc.
The process will follow 5 steps as follows:
1. Discover
2. Plan
3. Implement
4. Review
5. Revise
Once we know you, we build your plan.
Once we’ve built the plan, we implement it.
Once we’ve implemented it, we review it regularly.
If we need to make revisions, we do.
And the cycle repeats.
If your plan highlights that to achieve your aims you need to
take a step away from your deposit account then the advice
you receive is of paramount importance, in an environment
where the sheer range of options is vast. For all the benefits
of choice, comparing the different funds and investments
and understanding which are most suitable for you requires
study, research and ongoing oversight. There is sometimes,
within clients, an irrational fear of uncertainty when
breaking the ties from the comfort of the deposit account.
What seems an acceptable risk to you might be a step too
far from what is deemed comfortable by someone else? It
is also important that we differentiate Risk-the chance of
losing something forever, from Uncertainty-the difficulty of
seeing exactly how the future will unfold. Take the following
Autumn Newsletter 2016
| 7
www.fdc.ie
example: a bet on a horse to win a race - there is a RISK
that you will lose all your capital if it doesn’t win. However, a
shareholding in Facebook shares will go up and down with
market sentiment but will likely have value for a long time
to come i.e. UNCERTAINTY.
It is said that there is a certain amount of truth behind
stereotypes. The same can be said of ‘piseógs’ and
‘seanfhocail’ from Ireland of old. We can also extrapolate
from clichés and sayings certain truisms that are particularly
apt when looking at investment and how investment works.
I will now examine what we at FDC call the five powers of
investment, which effectively are the foundations on which
we build your portfolio. In this examination I will defer to the
sages of old , whose insights will highlight that with all our
modern technology and new-type investment solutions,
things don’t really change that much!
1. The Power of Staying Invested.
[No point shutting the stable door after the horse
has bolted]
Markets tend to rise over time, but in the short term you
will see evidence of volatility, which will depress your values
and possibly depress you too. Far from seeing this as a
point where you should now exercise caution, you may look
on this as a serious opportunity to purchase further units
in your selected funds at a discount – or at least leave well
enough alone, to give markets time to recover. In recent
times, post the maturity of the Government backed SSIA
savings schemes, many clients continued their regular
contributions into savings plans. However markets soon
dipped and human nature being what it is, many investors
got nervous and queried their original plan to keep saving.
Those who stopped contributing paid a heavy price as
markets recovered and those that continued saving or
even increased their previous contribution benefited from
picking up units at deflated prices and therefore had more
units in an increasing market. Let the horse run-he might
come back to the stable better nourished!
2. The Power of Compounding and
Dividends.
[Look after the pennies and the pounds will look
after themselves].
Back in the good old days of higher deposit interest rates
8
| FDC Group
we were all aware of the benefits of compounding to some
small degree. Albert Einstein described compound interest
as the ‘eighth wonder of the world’ and through your own
investment portfolio this ‘wonder’ is working for you as
companies pay dividends to shareholders and they pay
interest on the loans (bonds)that they issue.
3. The Power of Diversification.
[Don’t keep all your eggs in one basket].
When the weather’s sunny, buy ice cream shares. When it’s
raining buy shares in umbrellas. Not sure what the weather
holds? Buy both- or ‘diversify’. A good portfolio will contain
investments that are diverse enough to ensure that they
won’t all gain or lose value at the same time .It is a very
effective tool.
4. The Power of Rebalancing.
[You’ll never go poor from taking a profit].
Over time different investments perform at different rates.
Ice creams and umbrellas again: at the end of the summer
ice cream shares will have done really well. Great! Buy more!
Actually, don’t. If you can make sure that you sell expensive
assets and buy cheaper assets, then you have a potentially
powerful driver of return in your portfolio. It means you
keep risk down too.
5. The Power of checks and balances.
[No Man is an Island]
Whilst we all like to think we can take on and complete
any task we set ourselves, in a lot of cases it is advisable to
defer to the experts and their systems – possibly to protect
us from ourselves. Predicting exactly when a market might
fall, by how much and for how long is impossible to do
consistently. But it is possible these days to identify longterm trends and movements in stock markets in a way that
can inform the individual investor as to what way to invest.
If the chances of a stock market fall are increasing, there
are systematic checks and balances in portfolios to reduce
exposure to assets that would be most affected by those
falls- thus insulating your net worth.
Of recent years I have been asked by many clients as to
what was the main reason or explanation for clients losing
a lot of their personal wealth during the years 2007-2009.
My answer, if somewhat simplistic, reverts back to human
behaviour and people’s propensity to question ‘Am I the
only fool’ for not following a particular path and eventually
becoming one of the herd. Investing in an arena that is
comfortable for you, based on your individual lifestyle
choices, your attitude to and ability to take risk, will set you
apart from the herd and not lead you down a path you are
financially ill-equipped to take.
In summary, FDC believe that through a well- tailored,
bespoke investment plan, an investor can target their own
particular goals in an environment where the levels of Risk/
Uncertainty are commensurate with their chosen path. FDC
will hold your hand throughout this process and together
with our qualified staff and rigorous reporting structure, will
ensure that a long and trusting relationship is put in place.
Intestacy: a lost
opportunity in Estate
Planning
Barry Lonergan, FDC Tax Department
Many people go through life without determining
what should happen to their property when they die.
Many consider it morbid and gloomy to dwell on such
matters, but it makes sense to give careful consideration
to where we would like to direct our property when we
die. The failure to do so may give rise to unintended
adverse consequences both in terms of succession and
taxation issues.
The cornerstone of Irish succession legislation is The
Succession Act, 1965. The Act deals with all manner of
inheritance law issues and importantly it sets out the
legislative framework of what happens to the assets of
a person who dies without making a will (an ‘intestate’).
Where a person dies without making a will, or makes a will
that does not comply with the proper legal formalities, then
that person is said to have died ‘intestate’ and their assets
will be dealt with under the rules of intestacy. Indeed,
even in situations where an otherwise valid will has been
made, but there are say difficulties within the will itself, for
example where it overlooks an asset and does not make
any provision for it, then that asset is dealt with as if there
was an intestacy (‘partial intestacy’).
The 1965 Act provides clear rules regarding how assets
are dealt with in an intestacy situation. The Act sets out
the strict order of the entitlement to take a share in the
deceased’s estate and the order of persons entitled to act
as ‘administrator’. Broadly speaking, the Act provides for
a system of intestate succession that places the intestate’s
spouse and/or children/grandchildren to the fore and
in default of such ‘immediate family’ being available to
inherit it will follow the intestate’s next of kin, from varying
degrees of closer blood-ties to that of remoter relative until
eventually if there is no ‘next of kin’ to inherit, the State will
be the ultimate beneficiary.
For example, where the intestate is survived by a spouse/
civil partner where there are no children, then the spouse/
Autumn Newsletter 2016
| 9
www.fdc.ie
civil partner inherits the entire estate; or where there are
children, then the spouse/civil partner gets two-thirds,
and one-third is divided equally between the children
(if a child has already died then his/her children take
a share). To further illustrate, where the intestate is a
bachelor or a widower, without children/grandchildren,
and whose parents have predeceased, then if he has
siblings who survive him then they take equally, or if any
have predeceased then their surviving children, if any, (i.e.
nephews/nieces) will take their parents share, equally.
Whilst these intestacy rules govern those cases where
intestacy arises, they are nonetheless something of a blunt
instrument in so far as once they become operational they
are set in stone and cannot be interfered with in ordinary
course (save for in few and limited circumstances, such
as where a person disclaims their share). Therefore, in the
absence of a valid will the deceased loses control over the
distribution and administration of his/her estate.
It is obvious that many people would not, for one reason
or another, wish for their estate to be distributed in
accordance with these intestacy rules and would wish
to benefit people or organisations (such as charitable
organisations) in a manner of their own choosing.
For example, if you have an incapacitated child or an
incapacitated relative then you may wish to make unique
and special provision for them in your will, for example by
setting up a protective trust to maintain them and cater
for their needs. With regards to minor children, you can
establish a trust to provide for their overall welfare, to
include their medical, educational and other needs.
Crucially, parents can appoint ‘Testamentary Guardians’ in
their will: many parents of young children are unaware of
the importance of appointing testamentary guardian(s)
to their minor children. Guardianship carries extensive
responsibilities regarding the key decisions and choices
that can be made in a minor’s life – for example decisions
concerning where the child will live (which may include
a decision to relocate a child to a foreign jurisdiction),
whether that child will be adopted, what medical treatment
and procedures a child will undergo, what school they
will attend, and what religious up-bringing (if any) a child
will have. Therefore, it is imperative that parents of minor
10
| FDC Group
children (and especially where a parent/guardian is a sole
guardian), should make a will appointing a testamentary
guardian(s) to act on their behalf should they die before
their child reaches majority. That parent should, in tandem
with that appointment, obtain the consent of the intended
guardian and where beneficial, make any other parent/
guardian aware of that intention. It would also be wise also
to have an open discussion with the testamentary guardian
and any other parent/guardian, to set-out in advance the
kind of decisions that the parent feels should be taken
in event that he/she dies and the testamentary guardian
is required to act. Such action could help to avoid future
disputes between the testamentary guardian and other
relatives of the deceased parent.
If a parent with young children dies intestate, or fails to
make provision in their will for a guardian to be appointed,
it is still possible for someone with an interest in the
children to apply to court to be appointed a guardian of the
child. Such a court application will involve legal expense
and the decision as to who will act as guardian will be for
the Court to decide. The court-appointed guardian(s) may
not be the person(s) that the deceased parent would have
selected for that purpose and indeed, as part of the Court
application, legal dispute may arise amongst relatives as
to who should be appointed guardian. Suffice it to say it is
imperative that parents of minor children ought to ensure
that they appoint suitable candidates to act as guardians to
their minor children by making clear provision for such in a
legally effective will.
It is also important for business owners to fully plan for the
orderly succession of their business. The execution of a will
by the Testator is a far safer and effective method of doing
this than if the business assets and goodwill fall subject
to the rules of intestacy. With intestacy the deceased’s
estate vests in the President of the High Court pending
the issue of the Grant (which can take months – if not
years – depending on the circumstances). Where there is a
valid will the property of the testator vests in the personal
representative on the testator’s death and prior to the
issue of the Grant, which Grant thereafter confirms the
appointment of the executors and provides formal proof
of their authority. Furthermore, whilst the Succession Act
confers wide powers upon the personal representatives to
deal with the deceased’s assets, these statute-conferred
powers are not always sufficient in the modern economic
climate. A will can be drafted to provide the personal
representative with the clear written authority to carry on
the business pending inheritance (thus removing any doubt
in that regard) and can provide such specific and additional
powers that may be needed to run the business as a going
concern, pending inheritance. For example, the will could
provide the executor with the power to appoint managers
in respect of estate assets and the power to invest or
purchase ‘unauthorised’ securities.
Apart from the succession planning, engaging in the
process of making a will is also a valuable opportunity to
provide for the intended beneficiaries in the most taxefficient manner. This is essential for ‘high value’ estates
where the beneficiaries’ inheritance tax thresholds will likely
be exceeded, as well for the succession of businesses and
farms in order to qualify for the substantive and valuable
reliefs that are currently available.
To conclude, there may be some rare situations where a
person may in good conscience feel that it is better not to
make a will and to leave everything to pass on intestacy.
However, in the majority of estates, intestacy simply
causes the deceased’s assets to be become fettered by
the intestacy provisions of the Act. This can be avoided by
executing a legally effective will.
If you have any queries concerning the issues referred
to, then please contact our Tax department who will be
delighted to hear from you.
DISCLAIMER: While every care has been taken in respect of
the material contained in this article, no legal responsibility
or liability is accepted, warranted or implied by the author
or FDC Tax Dept. Ltd. in respect of any errors, omissions or
misstatements.
FDC Banking Support
Services
Dave Sheane, FDC Southern Region Ltd.
The primary objective for banks in general is to lend
money profitably.
The main factors contributing to the achievement of that
goal include the following:
•
A robust and consistent/uniform loan proposal
assessment process.
•
Correct pricing
•
Putting good realizable security in place
•
An efficient assessment and delivery process
•
Getting repaid as agreed without any loan arrears
A key reality in the Irish Market at present is that there is
not enough competition within the market. Effectively there
are just three players when it comes to raising finance for
FDC customers: AIB, Bank of Ireland and Ulster Bank.
A second key reality in the Irish Banking market is that all
banks exhibit the symptoms of the trauma associated with
the credit crises. This includes new management, new staff,
new processes and a revised more comprehensive and
considered approach to risk assessment.
Finally Irish banks are now, more that ever, influenced by
regulatory influences.
Basel II–sets out minimum capital requirements to cover
loss from credit risk (80%), operational risk (12%) & market
risk (8%) . This has led to requirement on banks to calculate
a grading that reflects the probability of default for loans in
order to determine the level of capital that the banks needs
to set aside to protects its shareholders and depositors
from risk of loss. More and more we will hear bankers
talking about RAROC (Risk Adjusted Return on Capital)
which measures the return on capital lost / set aside for
loans – the riskier the loan the more capital required. As one
would expect the margin charged on loans is a key driver in
the RAROC calculation.
These market place factors of limited suppliers of finance,
changes within the banks themselves, increased regulation
Autumn Newsletter 2016
| 11
www.fdc.ie
and the capital requirements driven by Basel II present an
extremely challenging market for the potential borrower.
It is essential, from a customer perspective, that all loan
proposals directed to Banks are comprehensively and
professionally prepared. This is essential in order to secure
an approval with the best pricing and conditions - factors
driven by the banks understanding and view of the inherent
risk factors that apply.
The Banks key criteria in assessing borrowing propositions
are generally predictable and stable:
•
Background (Client abilities and enterprise history)
•
Purpose
•
Financial Analysis for Repayment capacity
•
Security
•
Financial Risk (Profitability, Liquidity,Working Capital,
Gearing)
•
Business & Management Risk
•
Bank Credit Policy & Exceptions
•
Risk Analysis – Credit Grade/RAROC
•
Pricing & Fees
FDC Banking Support Services
The fundamental business objective of FDC is stated
as being “the delivery of a quality service to our clients
proportionate to their need”. Over the years we have
looked to position ourselves as a key trusted adviser to our
clients in all areas of their business dealings. These include
accounting, taxation, life cover, pensions, investments
services and overall strategic planning., business
consultancy.
Given the changes evident within the banking market
post the credit crises we are seeing a growing demand for
assistance with loan applications from a large cohort of our
customers.
Very often loan applications and arrears negotiations can
be significant and critical one-off events for our customers.
It is central to FDC’s trusted adviser aspirations that we play
a key role in that process.
12
| FDC Group
The main potential advantages of involving FDC directly in
the process include:
1. FDC can offer an independent and professional
assessment of the new money proposal or problemborrowing scenario.
2. FDC has significant experience in the processes.
3. For new monies and the majority of arrears cases
FDC knows the key decision makers personally and
is aware of what information they require and how it
should be presented.
4. FDC’s involvement and support in a case will be
viewed positively by the Banks and will add veracity
to the information provided in support of the
proposition.
5. FDC’s in-house legal, tax and financial services
resources.
The main areas where the FDC Group are currently offering
Banking Financial Support Services to its customers:
1. Assistance with new Agri related loans for complex /
larger cases usually in excess of €300,000.
2. Assistance with stressed loans including restructuring
arrears and settlement negotiations.
Farming Customers – New Monies
The demand for credit in the farming sector is
predominately within the dairy sector and is being driven
by the sectors higher margins, the abolition of quota and
recent land mobility incentives.
Successful dairy farming now requires a high degree
of technical knowledge and competence with usually a
significant level of direct labour input from the farmer
himself/herself. Given the time input and technical
focus it is understandable that the modern dairy farmer
generally does not have the time to give to a complex bank
negotiation. Furthermore they have not had the time or
opportunity to acquire experience in dealing with banks
and the loan application process.
A Teagasc review in 2015 of the financial status of dairy
farms and future investment requirements predicted a total
farm-level investment of between €1.5 to €1.7 billion was
required to meet the 50% increase in production target by
2020. While all of this requirement will definitely not be
funded by bank credit it is safe to assume that borrowing
activity levels will be high in the period.
Our approach to Banks needs to be comprehensive but
succinct.
Farming & Commercial Customers - Loan
arrears, restructuring and settlement
negotiation
The ambition needs to be that all the required information
to assist in arriving at a favourable credit decision is
included in our initial submission. This allows a direct focus
on what is being requested rather than what information is
missing.
There would seem to be no distinction between customer
sectors with both the commercial and farming client
demonstrating a similar demand for assistance from FDC in
times of difficulty.
NAMA and the main banks have looked to address the
larger delinquent commercial borrowings and the home
loan (MARP) cases over the last few years. It is evident
that the main banks are now beginning to address the
medium sized arrears non-MARP cases which have been
left to drift somewhat over the last few years. Where
direct engagement does not produce prompt results
we are seeing a tendency to move more rapidly to legal
proceedings and appointment of receivers. Some banks
have been “packaging and selling” these loans at a discount
to equity houses/ vulture funds. This changes the dynamic
significantly for the customer with the owner of their loan
usually seeking to extract value from their investment in
a short time frame. Their basic expectation is to receive
the value of the supporting security at a minimum. This
occurrence represents a real and urgent threat to the
businesses and farming enterprises involved.
Conclusion
The reality is that interaction with Banks and Credit
Agencies (Co-Ops Merchants) has become far more
complex and time consuming for all parties driven by
higher risk assessment standards and regulation. The arrival
of the vulture funds into the stressed loans market is also
a new issue that requires a considered and professional
approach.
FDC can provide a service to our customers in this context
and assist with the process where ultimately the aim is to
secure funding or a sustainable settlement with appropriate
terms, with appropriate security, at the right price and in a
timely manner.
FDC Banking Support Services would
include:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Enterprise assessment / Feasibility study
Business Plans
Loan application process,
Loan negotiation process,
Protection review and provision
Arrears negotiation / settlement
Bank reviews
Alternative Funding structures / sources
Bespoke Cashflow Plans
Management Advice
Assessment of Tax implications of any potential
settlement
Autumn Newsletter 2016
| 13
www.fdc.ie
AppointmentS
14
| FDC Group
Barry Lonergan joins FDC Tax
Department having worked for
many years in legal private practice
both Dublin and Cork. Barry qualified
as a solicitor in 2003 and over the
years has advised commercial clients
and private individuals on a broad
range of complex legal issues with
a high degree of specialisation in
property law, conveyancing and
probate, as well as with a wealth of
practical experience in the dealing
with the taxation issues that arise in
those practise areas.
Gillian O’Sullivan joined FDC Mallow
in August 2015. Gillian is an ACCA
qualified Accountant. She holds an
honours degree in Business Studies
from University of Limerick. Gillian
moved to practice accounting in 2014
having previously worked within the
financial services industry for five
years. Gillian is currently pursuing her
AITI qualification.
Denise Williams joined the FDC
Agri-consultancy team in April 2016.
In 2012 Denise was conferred with
a Bachelor’s Degree in Agricultural
Science from UCD, in Animal and
Crop Production. She subsequently
completed a Master’s Degree in
Agricultural Science (by research)
in 2014. The thesis was entitled
Optimising herbage composition
to maximise production of milk
and meat output relative to urine N
output. With previous experience
in both the public and private
agricultural sector, Denise will focus
on the implementation of the new
Rural Development Programme.
KEY AGRICULTURAL COMMODITY GRAPHS
Autumn Newsletter 2016
| 15
FDC GROUP
FDC GROUP
Head Office:
FDC House,
Wellington Road,
Cork.
Tel: 021-4509022
Email: [email protected]
www.fdc.ie
CORK
4/5/6 Patrick’s Quay,
Bandon, Co. Cork.
Tel: 023-8841744
Email: [email protected]
9 North Street,
Skibbereen, Co. Cork.
Tel: 028-21818
Email: [email protected]
Newtown, Bantry,
Co. Cork.
Tel: 027-52323
Email: [email protected]
The Clock House,
Mallow, Co. Cork.
Tel: 022 22724
Email: [email protected]
Percival Street,
Kanturk, Co. Cork.
Tel: 029-50292
Email: [email protected]
75 McCurtain Street,
Fermoy, Co. Cork.
Tel: 025-51888
Email: [email protected]
www.fdc.ie
Head Office:
FDC House, Wellington Road, Cork.
Tel: 021-4509022
Email: [email protected]
www.fdc.ie
Main Street,
Millstreet, Co. Cork.
Tel: 029-71082
Email: [email protected]
Corgigg,
Foynes, Co. Limerick.
Tel: 069-65326
Email: [email protected]
Church Street,
Cahir, Co. Tipperary.
Tel: 052 7441266
Email: [email protected]
Kilrock House,
Midleton, Co. Cork.
Tel: 021-4633772
Email: [email protected]
8 Carmody Street
Business Park,
Ennis, Co. Clare.
Tel: 065-6828992
Email: [email protected]
Ballyhall,
Roscrea, Co. Tipperary.
Tel: 0505-21944
Email: [email protected]
KERRY
26 Church Street,
Listowel, Co. Kerry.
Tel: 068-24740
Email: [email protected]
21 Denny Street,
Tralee, Co. Kerry.
Tel: 066-7193370
Email: [email protected]
LIMERICK/CLARE
St. Ita’s Road,
Newcastlewest, Co. Limerick.
Tel: 069-62688
Email: [email protected]
75 O’Connell Street,
Limerick.
Tel: 061-404644
Email: [email protected]
Lord Edward Street,
Kilmallock, Co. Limerick.
Tel: 063-98588
Email: [email protected]
WATERFORD
23/35 Lower Main Street,
Dungarvan, Co. Waterford.
Tel: 058-41893
Email: [email protected]
4 Church Street,
Dungarvan, Co. Waterford
Tel: 058-45001
Email: [email protected]
4 Main Street,
Lismore, Co. Waterford.
Tel: 058-72800
Email: [email protected]
2nd Floor, 108 The Quay,
Waterford.
Tel: 051-872327
Email: [email protected]
TIPPERARY
5 Castle Street,
Carrick On Suir
Tel: 051 640074
Email: [email protected]
Lower Gate Street,
Cashel, Co. Tipperary.
Tel: 062-61947
Email: [email protected]
CARLOW/KILKENNY
Church Road,
Graiguecullen, Co. Carlow.
Tel: 059-9142474
Email: [email protected]
The Square,
Tullow, Co. Carlow.
Tel: 059-9151685
Email: [email protected]
4 William Street, Kilkenny
Tel 056-7722647
Email:[email protected]
WEXFORD
Woodbine Business Park,
New Ross, Co. Wexford.
Tel: 051-421115
Email: [email protected]