The Budget can simplify Irish business succession with management buy-outs
Irish businesses have been increasingly attractive for international investors.
The Summer Economic Statement has set the stage for the annual Budget debate.
Over the coming months, Government, business organisations and industry will debate what measures are required to keep Ireland competitive, encourage investment and support the growth of Irish businesses. These are the foundations of a strong economy, and they will rightly be foremost in ministers’ thoughts around Budget measures to boost business. However, one area that often receives far less attention is business succession.
Irish businesses have been increasingly attractive for international investors. William Fry's latest M&A Review found that of the 524 M&A deals in Ireland, the US and UK investors accounted for more than two-thirds of inbound acquisitions of Irish companies last year. That level of interest reflects the strength, innovation and resilience of our indigenous business sector.
Ireland's ability to attract international investment is something to be celebrated. However, a balanced economy should also ensure that business owners have practical and viable options for homegrown investment when planning for the future of their businesses. Too often, succession planning can become unnecessarily complex. Budget 2027 offers an opportunity to remove some of those barriers.
When business succession is discussed, the conversation typically focuses on two options: passing a company to the next generation of the family or selling to an external buyer. The first option is proving difficult. There is plentiful research to suggest that succession planning is a problem in Ireland, particularly in certain sectors like agriculture.
To future-proof good businesses and prevent them from dying out, an area that deserves far greater attention is management buy-outs. They offer an opportunity for experienced leadership teams to become the next generation of owners. These are the people who already understand the business, know its customers, lead its employees, and have often played a central role in its success for many years.
Yet despite its advantages, management buy-outs remain one of the most difficult succession routes to deliver, and hence we do not see many of these in the market. To support this, the current government must first create a tax environment that allows them to compete on a level playing field.
The first stumbling block for management buy-outs (and other succession planning routes) is the different valuation methodologies across Capital Gains Tax, Capital Acquisitions Tax and Stamp Duty. This creates unnecessary complexity at precisely the point when business owners need clarity and confidence.
The government has an opportunity to address this through practical reforms that encourage management buy-outs as an important succession pathway and help to retain domestic ownership of ambitious companies.
First, the rules governing qualifying management buy-outs should be simplified to give founders and management teams greater certainty when planning ownership transitions. Certain measures introduced by governments over the last 10 years have made management buyouts more difficult to implement. For instance, existing anti-avoidance legislation means that using company monies to fund the buyout may mean the existing shareholder would be subject to income tax on the proceeds as opposed to CGT. This can be easily fixed by including a clause in the legislation where it says that CGT treatment will apply where the buyout is genuine.
Second, the Capital Gains Tax rate applying to qualifying management buy-outs should be more advantageous than the general rules. The first €1.5m of proceeds should be at 10% (as is the case now) but any proceeds above this should be taxed at 20% (currently33%). Such a measure would encourage more founders to consider succession through existing management teams.
Finally, Government should simplify Capital Gains Tax treatment for qualifying transactions so businesses can plan succession with confidence. Valuation certainty would be key here, along with legislation confirming that the proceeds received from a Management Buyout would be subject to CGT. These reforms would not only simplify succession planning but also strengthen the long-term resilience of Ireland's indigenous business sector.
Introducing a standardised valuation methodology for genuine succession transactions would provide greater certainty for business owners. It would reduce disputes, encourage earlier succession planning and help preserve indigenous businesses for future generations.
Business succession should not become more difficult simply because the tax system lacks consistency.
Supporting international investment is a good thing; our economy prospers when international, world-class organisations employ here and take an interest in our shared future; our pharmaceutical industry is testament to that. But we must also look to generate incentives that will strengthen our support for indigenous investment in businesses that won’t attract international buyers. Management buy-outs should be recognised as a key succession pathway because they allow successful businesses to remain independently owned and locally led where founders and management teams wish to pursue that route.
In many cases, these businesses are deeply embedded in their local communities. Decisions are made locally, long-standing customer and supplier relationships are maintained, and employment is supported by leadership teams who understand the business inside and out.
However, when founders begin planning their exit, they should have a genuine choice. If an experienced management team is ready and willing to take ownership, the tax system should make that option as attractive as an external sale. The good news is that with the level of M&A activity in the country, the external experience is there for smooth transitions, but the regulations are not enticing local buy-outs.
As Budget 2027 approaches, the Government has an opportunity to make practical improvements that would strengthen business succession planning for Irish investors. Management buy-outs might not be the right solution for every business, but where founders and management teams want to pursue that route, the tax system should help make it a realistic option
Dave O'Brien is head of tax with Xeinadin
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