Tax relief for entrepreneurs

9 July 2024

Overview

To encourage investment and entrepreneurial activity, a reduced rate of Capital Gains Tax (CGT) was introduced on the sale of certain business assets. The relief applies by reducing the current CGT rate of 33% to a reduced rate of 10% on the first €1 million of gains realised on the disposal of qualifying assets. This threshold is a lifetime limit and as such, all gains relieved using this relief are aggregated when taking into consideration the amount of relief available to be claimed. Any chargeable gains exceeding €1 million are subject to CGT at the standard rate of 33%.

What are Qualifying Business Assets?

To qualify for ‘Revised Entrepreneur Relief’, the individual must dispose of ‘Qualifying Business Assets’. An individual may avail of Revised Entrepreneur Relief if they are disposing of:

Qualifying shares held by an individual in a trading company or in a holding company of a qualifying group.
Qualifying assets including goodwill, owned by a sole trader and used in their trade.
Qualifying assets held by a partner in a trading partnership.

The relief will not apply to disposals of the following assets:

Shares, securities, or other assets held as investments.
Development land.
Assets on the disposal of which no chargeable gain would arise.
Assets personally owned outside a company, even where such assets are used by the company for the purposes of trading.
Goodwill which is disposed of to a connected company.
Shares or securities in a company where the individual remains connected with the company following the disposal.

Conditions of the relief

For the relief to apply, the person making the disposal must have owned the qualifying business asset for a continuous period of 3 years in the 5 years immediately prior to the disposal.

In the case of a share disposal, the person making the disposal must have been a director or employee of the company who:

Owns at least 5% of the ordinary share capital in the qualifying company or 5% of the ordinary share capital in a holding company of a qualifying group.
Has spent 50% or more of their working time in the service of that company in a managerial or technical capacity for a continuous period of 3 years in the 5 years immediately prior to disposal.

A qualifying group means a group where the business of each 51% subsidiary (other than a holding company) consists wholly or mainly of carrying on a qualifying business – however certain activities may be completely excluded e.g., development land.

Situations where the relief can apply:

Subject to the conditions being met, the relief can apply in the following situations:

Share buyback.
Company liquidations providing the company is carrying on a qualifying business up to the time the liquidator was appointed, and the liquidation was completed within 2 years.
Double holding company structures, the relief may apply in a double holding company structure where a holding company holds another holding company which, in turn, holds another trading company.
Partnership assets providing the assets disposed were used for the purposes of a qualifying business carried out by the partnership and the individual was actively involved in the business.

Capital Gains Tax Obligations

Individuals are required to pay their CGT liabilities on two separate dates within each tax year depending on the relevant date of disposal.
Where the date of disposal is:

between 1 January and 30 November, the associated liabilities must be paid by 15 December of that year.
between 1 December and 31 December, the associated liabilities must be paid by 31 January of the following year.

How we can help

We can advise you on your CGT filing requirements and obligations, as well as advising on structuring transactions exposed to Capital Acquisitions Tax, Capital Gains Tax, transfer of assets and detailed estate planning.

CONTACT US