As a business owner, you may have business assets that you plan on selling or have sold for greater than the amount you paid for them.
The gains made on the sale of these assets are subject to Capital Gains Tax in Ireland, but fortunately for business owners, you may qualify for Entrepreneur Relief, thereby minimising your tax liability. This is also a tax-efficient way to extract cash from your business.
Qualifying individuals can claim Entrepreneur Relief Tax relief on the gain they make from the sale if Revenue’s conditions are met and the paperwork is filed correctly and on time.
In this guide, we will explain what Entrepreneur Relief is and when and how you can claim it.
What is Entrepreneur Relief?
Entrepreneur Relief is a Capital Gains Tax relief on qualifying business assets whereby an individual (“the disponer”) will pay tax on gains at a reduced rate of 10%, as opposed to the normal rate of 33%.
This relief can be used in relation to gains of up to €1 million in any person’s lifetime.
In other words, entrepreneurs only pay a 10% tax on any gains up to €1 million when this relief is applied.
What is Capital Gains Tax?
To explain Entrepreneur Relief, it’s useful to discuss Capital Gains Tax in Ireland.
Capital Gains Tax (CGT) in Ireland is a tax that individuals must consider when selling, transferring, or parting with their personally owned assets, such as property, shares, and valuable items like art. Understanding CGT is essential for anyone involved in transactions with these assets to make informed financial decisions.
The standard rate of Capital Gains Tax is 33% of the chargeable gain you make.
Who should consider Entrepreneur Relief?
How to qualify for Revised Entrepreneurs Relief
- The qualifying business asset must have been owned for a continuous period of three years, and the three years must be in the five years immediately prior to the disposal.
- Where the business is carried on by a company, the disponer:
- Must own more than 5% of the company shares
- Have been a director or employee of the qualifying company and is/was required to spend more than50% of their time in the company
- Their position in the company ideally should have been in a managerial or technical capacity for a continuous period of three years in the five years prior to disposing of the chargeable business assets
What is a Qualifying Business and Qualifying Business Asset?
A qualifying business is any business other than:
- holding securities or other assets as investments
- holding development land or letting of land
Generally, a qualifying business asset can be:
- Assets held by a Sole Trader which are used in the trade
- A share of assets held by an active partner in a trading partnership
- Shares held by an individual in a trading company
When to claim the relief?
Revenue has two Capital Gain Tax (CGT) periods:
- “Initial period” from 1 January to 30 November
- “Later period” from 1 December to 31 December
If the gain is in the initial period, the CGT payment is due by 15 December in the same tax year.
For CGT on gains in the later period, the CGT payment is due by 31 January of the following tax year.
The details of the gain (not payment) are also declared in the disposer’s personal tax return i.e., Form 11 for that tax year.
For more information on your personal tax situation, we recommend that you get in touch with your accountant or talk to our Client Services Team for advice on how we may help.
Why outsource your tax returns
Entrepreneur Relief can be very advantageous for business owners as it allows them to extract profit from their business in a tax-efficient manner.
Planning and due consideration should be done by business owners to ensure their business assets qualify for tax relief.
We here at Accountant Online can initially help you perform a preliminary review of your company situation to assess any pre-sale planning that might be required.
Upon determining your eligibility for the relief, our award-winning team is happy to assist in calculating your tax liability, submitting returns to Revenue, and dealing with correspondence with Revenue.
Larissa is a Fellow Chartered Accountant (FCA) and is the CEO of Accountant Online, which specialises in company formation, company secretarial, annual accounting services, bookkeeping, tax, and payroll services for micro and small companies in Ireland and the UK.