Entrepreneurs Relief (10% tax rate)
Did you know there is a Relief available for earning up to €1 million of chargeable gains during your lifetime, at a rate of 10% tax?
The standard Irish Capital Gains Tax (CGT) rate at the moment is 33% but I’d like to spend a little time on this 10% rate.
My articles have never been technical or full of jargon. Taxes can change (especially so close to Budget day) and advice always needs to be personal* (*always!).
The point to this short note is awareness.
If you have any questions or feel you would like to make a plan for the future, then please talk fully with your advisors. Ensure you take good advice from a qualified source and you know my motto:
There are tax incentives and reliefs available for over 55’s for ‘retirement planning’ and for passing your business to the next generation, however, I’d like to spend a little time on a relatively new Relief, Entrepreneurs Relief.
Entrepreneurs Relief was introduced by the Finance Act 2014. It’s changed from how it looked originally. There may be instances where the original suits you better, so it’s good to know there are differences but as I’ve said, this isn’t technical, but just an overview so awareness may be formed.
If you own over 5% a business for a period of over 3 years, and you have the opportunity for a sale of that business or your share of it, at a good price and it fits with your financial plan and financial goals, then there is the opportunity that you might qualify for Entrepreneurs Relief and have the first €1 million gain taxed at 10% rather than 33% (normal CGT rate).
The Irish Revenue introduced this Relief as the UK have something like it (albeit MUCH more favourable and a lot less hoops to jump through to qualify). Personally, I wouldn’t believe the Irish version is very attractive for a serial investor, but let’s work with what we have.
It is a start for Ireland and it would be hoped in the upcoming budget, the €1 million lifetime limit might get increased (the UK lifetime limit is €10 million). Hopefully over time some conditions would be relaxed to allow us to get close to the UK qualifying conditions too.
As the Irish revenue have a number of definitions and conditions to be satisfied before you can qualify for this relief, the key point is to plan ahead. For example, if your company is part of a group of companies, where there is one dormant, non trading company (often the case with Irish group companies), then you may not qualify for this relief. Likewise, if you were a sole trader and incorporated your business, the period prior to incorporation would not be included as part of the 3 year ownership test.
Some simple planning and restructuring of your group (if necessary), could allow the Relief to be available.
When you talk to your advisors about your financial goals and plans, there may have been the scenario you envisaged growing your company to a reasonable size and knowing you may then like to sell. It might also be the case that as your business grows, you find it becomes attractive for a buyer, even though it’s not what you had originally set out thinking you would ever consider.
Whatever the reason, being aware of a potential 10% tax rate is always good. Should you feel you might want to know more about the detail of this, then I’d advise strongly that you talk to your advisor* (*always!). As I’ve mentioned, there are a lot of definitions in the legislation, not overly complicated but planning ahead is key.
Please feel free to contact me if you would like more information or to discuss your financial planning or if you would like some help working on your financial goals. Wendy@williamsmerrigan.ie