It is important that business owners have the right structure in place so that the appropriate relief from taxes can be claimed in the event of sale or transfer of your business assets. In particular, if you are over 45 years of age you should seek advice as tax planning cannot be done retrospectively. Two of the more advantageous reliefs are Entrepreneurial Relief and Retirement Relief.
In the recent Budget 2017 The Minister announced an amendment to the CGT entrepreneur relief, which was introduced in Finance Act 2015. The tax rate applying to gains arising on the disposal of qualifying assets after 1 January 2017 has been reduced to 10% from 20% on gains up to €1 million. Gains in excess of €1 million will still be chargeable at 33%. The Minister indicated that the €1 million lifetime limit will be reviewed in future budgets.
The relief is available to the individual owners of a trade or business (owners/founders of private unquoted companies, sole traders and farmers) in respect of the disposal of all or part thereoff of that trade or business which they have owned for at least 3 years. A qualifying business for the purposes of the relief is defined as any business other than the holding of securities, investments, or development land, and the development and letting of land.
In relation to a private company, individuals seeking to qualify for relief must own not less than 5% of the shares in the company or at least 5% of the shares in the holding company of a qualifying group. A qualifying group exists where a holding company holds one or more companies as its 51% subsidiaries and those companies are wholly or mainly engaged in a qualifying business activity.
The qualifying individual must also be director and / or employee of the company who spends at least 50% of their working time in a managerial or technical capacity, such position being held in a qualifying business for a continuous period of three years out of the last five years prior to the disposal.
Two types of “retirement” relief apply if you are aged 55 or more and you dispose of a business or farm (qualifying assets):
- If you dispose of your business or farm to your child, the gain is exempt. There is no limit on the value of business assets that may be passed to your child in this way. “Child” includes an adopted child, a favourite nephew or niece, and, a foster child. From 1 January 2014, in respect of disposals by persons aged 66 or over, the maximum value that can be passed tax-free to children is €3,000,000.
- If you dispose of your business or farm to any person other than a child within (a), the gain is exempt if the proceeds do not exceed €750,000. If the disposal proceeds exceed €750,000, marginal relief ensures the CGT may not exceed half the difference between the proceeds and €750,000. This is a lifetime limit per individual. From 1 January 2014, in respect of disposals by persons aged 66 or over, the €750,000 limit is reduced to €500,000.
These two reliefs operate independently of each other. Therefore, if you had two separate businesses, you could claim relief under (a) on the disposal of the first business and under (b) on the disposal of the second business.
Qualifying assets means you must own the assets for a period of more than 10 years on the disposal date. And for shares in a family company you hold at least 25% of the voting rights. If you do not, you must have at least 10% of the voting rights, and, together with your family, have at least 75% of the voting rights.
Contact Pat Sutton or Patrick O’Rourke on 045 530777 for more details and specific tailored advice.