Irish business owners have two main succession planning structures to consider: the Family Limited Partnership (FLP) and the Discretionary Trust. An FLP suits active trading families who want control, tax efficiency, and 90% Business Relief. A Discretionary Trust suits families with minor or vulnerable heirs who need asset protection and flexibility. With Capital Acquisitions Tax (CAT) at 33%, choosing the right structure early can make a significant financial difference.
Passing a family business to the next generation is one of the biggest decisions you’ll ever make. Get the structure right and you protect your life’s work, reduce the tax burden, and keep control where it belongs. Get it wrong and your family could face an unexpected bill, a dispute, or both.
With Capital Acquisitions Tax sitting at 33%, the stakes are genuinely high. Two structures dominate succession planning in Ireland: the Family Limited Partnership (FLP) and the Discretionary Trust. Both let you separate who controls the business from who benefits from it, but they work very differently, and the right choice depends entirely on your circumstances, your assets, and your family.
This guide walks through each structure side by side across the eight areas that matter most: tax, control, asset protection, compliance, costs, flexibility, succession planning, and who each structure actually suits. We also flag the three planning traps that catch families out most often.
Read this before you make any decisions. Then talk to a specialist.
What Is the Legal Framework for Each Structure?
Family Limited Partnerships
An FLP is governed by the Partnership Act 1890 and the Limited Partnerships Act 1907. Every FLP requires two types of partner:
- General Partners (GPs) run the business. They hold full operational control but carry unlimited personal liability.
- Limited Partners (LPs) are passive investors. Their liability is capped at their capital contribution, provided they stay out of active management. Step into day-to-day decisions and an LP forfeits that protection.
Every FLP must register with the Companies Registration Office (CRO).
Discretionary Trusts
A trust is a legal arrangement where trustees hold and manage assets for a defined group of beneficiaries. No beneficiary has a fixed entitlement to anything. What they receive, and when, rests entirely at the trustees’ discretion.
One important drafting point. Ireland still relies heavily on the Trustee Act 1893, which restricts default investment powers to very conservative options such as government bonds. Unlike the UK, which modernised its rules with the Trustee Act 2000, Ireland has not followed suit. That means an Irish trust deed must be carefully drafted to include wide express investment powers. Without them, trustees can find themselves constrained to a very narrow investment lane.
How Are Family Limited Partnerships and Discretionary Trusts Taxed in Ireland?
Tax treatment is where the two structures diverge most sharply, and where the financial consequences are most significant.
The baseline. CAT is charged at 33%, with a lifetime parent-to-child (Group A) threshold of €400,000. Both structures permit use of the €3,000 annual small gift exemption to shift wealth gradually over time.
Tax Treatment of an FLP
FLPs are tax-transparent. The partnership itself is not taxed. Income and gains pass through to individual partners each year. Two significant advantages follow from this:
- When you gift LP interests to your children, the value transferred is often reduced by valuation discounts for lack of control and lack of marketability, typically in the range of 15–35%.
- LP units holding qualifying business assets can attract Business Relief, a 90% reduction in taxable value. Future growth accrues directly to your children, free of further CAT.
This combination of discounts and relief can dramatically reduce the effective tax burden on a business transfer.
Tax Treatment of a Discretionary Trust
Discretionary Trusts carry a heavier tax load. While mainstream CAT is deferred until trustees make an outright distribution, which can sound attractive, trusts face their own charges under the Capital Acquisitions Tax Consolidation Act (CATCA) 2003:
- Discretionary Trust Tax (DTT): a 6% entry charge (reduced to 3% if the trust is wound up within five years of the settlor’s death), plus a 1% annual levy on the value of trust assets.
- Business Relief and Agricultural Relief do not apply to DTT. This surprises many families, and it is a costly surprise.
- On income retained within the trust, trustees pay the standard 20% income tax rate plus a 20% surcharge on undistributed income under Section 805 of the Taxes Consolidation Act 1997.
How Do FLPs and Discretionary Trusts Protect Family Assets?
Asset Protection Under an FLP
FLPs rely on contractual mechanics. Because business assets are legally registered to the General Partner, a personal creditor of an LP child cannot reach the underlying business. Their only remedy is a “charging order” over the LP units, and that yields nothing if the GP exercises discretion to suspend distributions.
To address the unlimited personal liability that comes with being a General Partner under the 1907 Act, planners routinely establish a Corporate General Partner, a private limited company, to sit in the GP role. This is common practice, but it comes with a significant compliance consequence (see the Qualifying Partnership trap below).
Asset Protection Under a Discretionary Trust
Discretionary Trusts offer the strongest protection available. Beneficiaries hold only a spes successionis, a hope of inheriting, not a legal entitlement. Trust assets sit entirely beyond the reach of a beneficiary’s creditors, divorce proceedings, or litigation claims. For families with concerns about a beneficiary’s financial habits, relationship stability, or vulnerability, this is a powerful shield.
Who Retains Control Under Each Structure?
Control in a Family Limited Partnership
FLPs are designed to keep the founder firmly in charge. The General Partner, usually the parent, makes every business decision, signs every contract, and controls every distribution. You can gift 99% of the economic value to your children while retaining 100% of operational control through a 1% GP interest. For a business owner who wants growth to pass on but is not yet ready to hand over the reins, this combination is hard to match.
Control in a Discretionary Trust
Legal control rests with the trustees, who are bound by strict fiduciary duties to act in the beneficiaries’ best interests. Here is the risk: if you appoint yourself as trustee to maintain a grip on the business assets, you risk triggering a “gift with reservation of benefit” under Section 5 CATCA 2003. If that applies, the assets are pulled straight back into your taxable estate, undoing the planning entirely.
How Does Each Structure Support Succession Planning?
FLPs are built for phased, flexible handovers. Adding or removing Limited Partners is straightforward, achieved simply by amending the partnership agreement as family circumstances evolve.
Discretionary Trusts work on a “wait and see” basis. The trust buys time. Trustees can hold off on distributions until a beneficiary demonstrates financial maturity, or until they qualify for valuable reliefs such as dwelling house relief or agricultural relief. For families with young children, this flexibility is genuinely useful.
What Are the Administration and Compliance Obligations?
FLP Compliance
FLPs are generally confidential and have historically sat outside public financial filings. However, there is a critical trap here.
If you use a Corporate General Partner to limit liability, the FLP becomes a “Qualifying Partnership” under the European Union (Qualifying Partnerships: Accounting and Auditing) Regulations 2019 (S.I. No. 597/2019). That triggers a legal duty to file fully audited, public financial statements with the CRO. The commercial privacy you valued disappears. This is one of the most commonly overlooked consequences of FLP structuring.
Discretionary Trust Compliance
Trustees carry a heavier ongoing reporting burden. They must register detailed beneficial ownership information, covering settlors, trustees, and beneficiaries, on the Central Register of Beneficial Ownership of Trusts (CRBOT). Anti-money-laundering obligations also apply.
What Does Each Structure Cost to Set Up and Maintain?
FLPs are typically more expensive to establish, around €10,000 to €25,000, because of the bespoke partnership agreement and the Corporate GP company. If the FLP becomes a Qualifying Partnership, mandatory annual audits add a further €5,000 to €15,000 per year.
Discretionary Trusts cost less to set up, around €5,000 to €15,000 to draft the deed or will. But the holding costs accumulate significantly over time: 6% DTT on entry, 1% DTT annually, and the 20% Section 805 surcharge on retained income can far outstrip an FLP’s running costs over a decade or more.
How Flexible Is Each Structure Once It Is in Place?
FLPs are highly adaptable. The partnership agreement can be amended whenever the partners agree, a relatively straightforward process.
Discretionary Trusts are rigid by design. Changing the terms of an irrevocable trust usually requires an application to the High Court under the Variation of Trusts Act. That is an expensive process, and a very public one.
At a Glance: Advantages and Disadvantages
Family Limited Partnership
Advantages
- Complete parental control over operations and distributions
- Significant CAT savings through valuation discounts
- 90% Business Relief available on qualifying assets
- Flexible and relatively simple to amend
- Avoids DTT and the Section 805 income surcharge
Disadvantages
- Loss of privacy and significant audit costs if a Corporate GP is used
- Unlimited personal liability for the General Partner (unless a Corporate GP is in place)
- More complex accounting obligations on dissolution
Discretionary Trust
Advantages
- Unmatched protection against creditor claims and marital breakdown
- Well-suited for minor, vulnerable, or financially inexperienced beneficiaries
- Defers mainstream CAT until distribution
- Section 17 CATCA 2003 exemption available for trusts benefiting incapacitated persons
Disadvantages
- Heavy holding taxes, 6% and 1% DTT, plus the 20% income surcharge
- Founder loses direct operational control under fiduciary duty rules
- Significant CRBOT registration and anti-money-laundering compliance burden
- Rigid, High Court application required to vary an irrevocable trust
Which Structure Suits Whom?
Choose an FLP for an active trading family enterprise. This structure fits parents in their 50s or 60s with a valuable trading business or investment portfolio. They want to pass future growth to their adult or teenage children, use Business Relief to reduce the CAT exposure, and freeze the value of their estate, all while keeping full control of operations and cash flow.
Choose a Discretionary Trust where heirs are minor or vulnerable. This is the right tool where children are still young, or where an heir faces a serious disability, addiction, or difficulty managing money. A trust properly structured for an incapacitated beneficiary can qualify for the Section 17 CATCA 2003 exemption, which removes the 6% and 1% DTT charges entirely. That is a meaningful saving, but only where the qualifying conditions are met.
In practice, some families use both structures simultaneously: an FLP to hold the trading business with Business Relief available, and a Discretionary Trust to hold other assets for younger or more vulnerable beneficiaries.
Three Traps to Plan Around
1. The Section 805 Income Surcharge
Holding income inside a trust, perhaps to protect it from a spendthrift beneficiary, triggers the 20% surcharge on top of standard income tax. Where a Discretionary Trust is used, wealth is often more efficiently held in capital-appreciating, non-income-producing assets. Restructuring the trust’s asset base to manage this exposure is something to plan at the outset.
2. The Qualifying Partnership Trap
Using a limited company as your General Partner is a sensible liability management step, but it activates the European Union (Qualifying Partnerships: Accounting and Auditing) Regulations 2019 (S.I. No. 597/2019). That means public, audited financial accounts filed with the CRO. The commercial privacy that makes an FLP attractive can disappear overnight. Weigh the loss of confidentiality carefully against the protection from unlimited personal liability before committing to this structure.
3. Retroactive DTT on Will Trusts
Following Finance Act 2012 amendments, a discretionary trust created under a will is subject to DTT from the date of death, not the date estate administration finishes. That distinction matters. Executors can face an unexpected liquidity demand while the estate is still being administered. Planning for that liquidity squeeze, whether through life assurance or other means, is essential for any Will Trust strategy.
Key Legislative References
- Partnership Act 1890 and Limited Partnerships Act 1907: FLP formation and partner liability
- Trustee Act 1893: default investment powers for Irish trusts
- Capital Acquisitions Tax Consolidation Act (CATCA) 2003: S.5 (gift with reservation of benefit), S.17 (DTT exemption for incapacitated beneficiaries), S.90-101 (Business Relief)
- Taxes Consolidation Act (TCA) 1997: S.805 (20% surcharge on undistributed trust income)
- European Union (Qualifying Partnerships: Accounting and Auditing) Regulations 2019: S.I. No. 597/2019 (Qualifying Partnership obligations)
- Case law: Quigley v Harris [2008] IEHC 403: the leading Irish authority on the classification of limited partnerships and the characteristics of general and limited partners for tax and liability purposes
Make the Right Decision for Your Family
There is no single right answer. An FLP delivers control, flexibility, and powerful tax reliefs, well suited to active business owners who want to pass on growth without surrendering the reins. A Discretionary Trust delivers protection and patience, better suited to families where beneficiaries are young, vulnerable, or not yet ready to manage significant wealth.
The best structure depends on your assets, your family, and your long-term goals. Getting that right is a conversation worth having early, and having properly.
We are here to help. Our team guides Irish families and business owners through succession planning at every stage. Get in touch today and we will make sure you have the right structure in place.
Frequently Asked Questions
What is the difference between a Family Limited Partnership and a Discretionary Trust in Ireland?
An FLP is a registered partnership structure governed by the Partnership Act 1890 and the Limited Partnerships Act 1907, in which a General Partner retains full operational control while Limited Partners hold economic interests. A Discretionary Trust is a legal arrangement in which trustees hold assets for a class of beneficiaries at their discretion, with no beneficiary holding a fixed entitlement. The key differences lie in tax treatment, control, and asset protection: FLPs offer Business Relief and valuation discounts but less creditor protection; Discretionary Trusts offer strong asset protection but carry heavier holding taxes.
Can I use Business Relief to reduce CAT on a Family Limited Partnership transfer?
Yes, LP units holding qualifying business assets can attract Business Relief under Sections 90-101 CATCA 2003, reducing the taxable value of those assets by 90%. Business Relief does not apply to Discretionary Trust Tax, which is a separate charge under the CATCA 2003 regime.
What is Discretionary Trust Tax and who pays it?
Discretionary Trust Tax (DTT) is a charge under CATCA 2003 on assets held within a discretionary trust. It is levied at 6% on the value of trust assets on the creation of the trust (reduced to 3% if the trust is wound up within five years), plus a 1% annual levy thereafter. The trustees are responsible for paying DTT from trust assets.
What is the Section 805 surcharge on trust income?
Section 805 of the Taxes Consolidation Act 1997 imposes a 20% surcharge on income accumulated within a discretionary trust that is not distributed to beneficiaries. This is charged on top of standard income tax, making it expensive to hold income-producing assets inside a trust over the long term.
When does the Qualifying Partnership obligation apply to a Family Limited Partnership?
Under S.I. No. 597/2019, a Family Limited Partnership becomes a “Qualifying Partnership”, and must file publicly audited financial accounts with the CRO, when a corporate entity (such as a private limited company) acts as its General Partner. This is a common structure used to limit the GP’s unlimited personal liability, but it carries a significant compliance and privacy consequence.
Is a Discretionary Trust right for a child with a disability?
A Discretionary Trust structured for an incapacitated beneficiary may qualify for the Section 17 CATCA 2003 exemption, which removes the 6% and 1% DTT charges entirely. This makes it a particularly powerful planning tool for families with a vulnerable or incapacitated heir. Specialist legal advice is essential to ensure the trust is properly structured to meet the qualifying conditions.
What did Quigley v Harris [2008] IEHC 403 establish?
Quigley v Harris [2008] IEHC 403 is the leading Irish authority on the classification of limited partnerships for tax and liability purposes. The case confirmed that a limited partnership is transparent for Irish tax purposes, meaning income and gains are taxed at the partner level, not within the partnership itself, and set out the key characteristics distinguishing a general partner from a limited partner, particularly in the context of liability.
About the author: Claire Tuohy is a Partner at HOMS Assist, specialising in wills, trusts, probate, and cross-border estates. With dual qualifications in Ireland and England & Wales, and as an active member of the Society of Trusts and Estate Practitioners (STEP), Claire brings deep expertise in tax-efficient succession planning. Her commitment to clear, practical advice ensures high-net-worth clients navigate complex estate matters with confidence.
This article is provided for general information purposes only. It does not constitute legal or tax advice and should not be relied upon as such. Irish succession law and tax legislation, including the rules governing Discretionary Trust Tax, Capital Acquisitions Tax reliefs, CRBOT registration, and the structuring of Family Limited Partnerships, are highly nuanced. Every family’s circumstances are different. You should always seek professional legal and tax advice tailored to your specific assets, family structure, and objectives before putting any succession planning structure in place.
