Entrepreneur Tax Break on Capital Gains
This is a very useful relief for individuals planning on operating their own business through a company structure. It allows the gain on the disposal (i.e. sale) 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 a 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.
Worked Example: How the relief can work in practice
You are operating a business through a company. You have 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 which 12.50% (standard rate as of 7 January 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 the company (sell all shares).
Without this relief, you would pay 33% tax upon sale / close of business = €72,187
With Entrepreneur Relief, the tax payable would be €21,875.
Therefore, a saving of 23% – saves you up to €50,312, in this example.
- Business assets must have been owned for at least 3 years, continuously, prior to selling. Assets include ordinary shares in the company.
- Ownership by spouse does not count. Ownership through sole trader / partnership business does not count.
- Individuals must own at least 5% of the business (i.e. 5% of ordinary shares in the company or holding company).
- 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.
- Relief does not apply to any assets held as investment.
- Relief does not apply to development land.
- Relief does not apply to any assets held outside the company structure – even if used by company.
When the reliefs can apply:
- Disposing shares of a company to another individual or company
- Share Buybacks, where the share buyback is within the charge to CGT
- Company Liquidation – where business was being carried on until appointment of liquidator and liquidation is competed within 2 years.
- 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.