Mid-summer may seem like an unusual time of year to be thinking about a December budget. However, significant changes are expected, some of which may result in a substantially higher tax bill for those affected. In particular, business owners seeking to pass their business onto the next generation are likely to be faced with a much higher tax bill post budget.

In addition, punitive changes are expected to be made to the pension regime, with similarly significant tax consequences.

While the pension changes will be phased in over the next three years, now is the time to plan, given both the negative impact on net income and uncertainty over the date of implementation.

A business owner can currently transfer his business to a family member at no cost to the business owner, thus facilitating tax-efficient succession planning. Given the Commission on Taxation recommendations, it is widely anticipated that, post the December budget, this relief will be limited to businesses and farms worth €3m or less.

What does this mean in monetary terms? Take a business worth €8m that is passed from father to son.

Currently, no tax is payable by the father on this transfer.

If recommendations made to the minister are followed, a tax bill of €1.25m may be payable by the father on a transfer post-December 2010. The position of the son may also change considerably post-December.

Currently, the tax arising on the acquisition of the business could be less than €100,000 after utilisation of existing reliefs and thresholds.

Post budget, the tax bill will rise to circa €1.1m if the Commission on Taxation recommendations are followed.

In summary, business owners looking to pass on the business to the next generation are potentially facing a significantly larger tax bill.

Therefore, where such a business transfer is envisaged in the short to medium term, there is a clear incentive to take action before December 2010.

Significant changes to the existing pension regime were announced in March 2010 on publication of the National Pensions Framework.

Implementation of the proposals outlined in the framework is scheduled to take place by 2014, with some important changes taking effect well in advance of this date – quite possibly in budget 2011 later this year.

A key change is the proposed restriction of tax relief on personal contributions to pension schemes to 33%.

While this will be a positive change for individuals on earnings that are subject to tax at the standard rate of 20%, it will have an adverse impact on earners who are subject to tax at the higher rate of 41%.

The expected changes present an opportunity for employees/employers to optimise the attractiveness and flexibility of the employer pension contribution element of remuneration packages.

From 2011, all members of employer-sponsored defined contribution (DC) schemes will qualify for the Approved Retirement Fund (ARF) regime.

This means that an employee will no longer be obliged to buy an annuity with their pension funds upon retirement. The ARF regime will allow an employee to retain control of their pension funds in retirement, while on death the unused value of the ARF fund could be left as an asset of their estate.

This is a significant improvement on the current position. However it is worth noting that the ARF options can only be accessed where a minimum "specified income" amount is earned (€18,000 per annum under the framework proposals).

Under the framework proposals, it is likely that an annuity will need to be acquired where the minimum amount is not reached.

In the current low-interest-rate environment, the cost of acquiring such an annuity is likely to be prohibitive.

A very significant change proposed in the framework is the introduction of a cap of €200,000 on tax-free lump sums from pensions.

This is a significant reduction from the current limit of €1.35m.

There is no indication as to the tax rate applicable to the taxable portion of the lump sum.

Many employees will have paid tax on part of a voluntary termination payment when leaving an employment in anticipation of getting a tax-free pension lump sum above €200,000.

The introduction of a €200,000 cap on the tax-free element is in effect a double taxation on such individuals.

Individuals who are currently over 50 and whose tax-free pension lump sum would be reduced as a result of the new cap should consider options in terms of accessing the benefits of the existing regime in advance of the proposed changes.

In summary, many taxpayers are likely to be facing a significantly more penal tax regime in 2011.

In certain cases, it may be possible to take action now rather than suffer the consequences next year.

Thus on reflection, maybe now is not too early to start thinking about December's budget.

Peter Vale is a Partner (Tax) with Grant Thornton