Entrepreneur Relief (Capital Gains Tax)

Entrepreneur Relief is a very useful relief for individuals planning on operating their own business through a company structure. It allows the gain on the disposal of the shares owned in a company to be taxed at 10%, rather than 33%, thereby enhancing the REAL VALUE (after-tax value) of an individual’s shares.

Section 597AA provides that a 10% rate of CGT applies in respect of chargeable gain gains on disposals of qualifying business assets on or after 1 January 2016 up to a lifetime limit of €1,000,000. 

The business can be any business other than the holding of development land or the development or letting of land.

How the relief can work in practice:

Example: 

You are operating a business through a company. You have a turnover of €150,000. You have expenses of €50,000 and take a €50,000 salary.

PROFIT = €50,000 per year.

The profit is taxed at the relevant corporation tax rate – 12.50% (Std rate @ 07/01/2018)

After 5 years of operating the company, there will be €218,750 in the company bank account. At this point you wish to sell a portion of the business, or the business ceases and you liquidate (sell all shares).

Without this relief, you would pay 33% tax upon sale/close of business = €72,187

With entrepreneur relief, tax payable would be €21,875

A saving of 23% – saves you up to €50,312, in this example.

Conditions:

1. Business assets must have been owned for at least 3 years, continuously, before selling. Assets include ordinary shares in the company. Ownership by spouse does not count. Ownership through sole trader/partnership business does not count.
2. Individuals must own at least 5% of the business (i.e. 5% of ordinary shares in the company or holding company)
3. Individual must have been a director or employee of the company and have spent at least 50% of his/her time in a managerial or technical capacity within the company for 3 years.
4. Relief does not apply to any assets held as investment
5. Relief does not apply to the development of land
6. Relief does not apply to any assets held outside the company structure – even if used by company

Relief can apply when:

1. Disposing shares of a company to another individual or company
2. Share Buybacks, where the share buyback is within the charge to CGT
3. Company Liquidation – where business was being carried on until the appointment of a liquidator and liquidation is completed within 2 years.
4. Partnership assets: Relief can apply to the interest of an individual in the assets of a partnership in which where those assets were used for the purposes of a qualifying business carried on by the partnership and the individual was actively involved in the business.

Speak to an expert

For more information about Entrepreneurs Relief, complete the form below and a member of our team will call you back.

First name*

Surname*

Phone Number*

Business name*

Email*

Your message*

Privacy*

I agree to the Xeinadin privacy policy*

Get in touch

Δ