Planning retirement or a business sale in the next 10 years?

Capital Gains Tax in Ireland (CGT) is 33%. But advance planning can reduce it – or even eliminate it.

Irish business owners should be building on their exit plan from day one but it’s never too late to start, as Paul O’Donovan explained at our recent conference.

“As soon as you start your business, always be working towards an exit plan. Ensure you’ve planned for the most tax efficient ways of extracting money from, and disposing of, your business. If you fail to plan – you are planning to fail.”

When that exit comes, business owners can gain full relief on CGT with Retirement Relief (this is generally for those aged over 55 at time of disposal) or reduce that 33% liability down to 10% by claiming Entrepreneur Relief. Reliefs are also available on liquidation in some cases.

What can you claim retirement relief on?

Relief on CGT of 33% is possible on the disposal of any part of your qualifying assets. These generally fall into two categories:

• Shares or Securities
• Chargeable Business Assets (CBAs)

CBAs are used for the purpose of trade and profession. They typically include land, buildings, plant & machinery and goodwill. For retirement relief, qualifying assets must be held for a minimum period, usually 10 years. 

Qualifying for retirement relief

The business owner must be 55 years, or older, on the date of disposal. They can be under 55 for certain health reasons. In addition, they must:

• Hold at least 25% of voting rights
• Have been a working director for minimum 10 years & full-time for at least 5 of those

Timing and age are crucial

If you are disposing to a child or qualifying family member, age matters. You can avail of full CGT relief if you are between 55-65 but that relief may be restricted to €3 million if you are over 65 years.

There is a claw back if child disposes of the assets within 6 years, which payable by the child. It’s a common misconception, Paul says, that you can no longer be involved in the business. “You are not required to fully retire from your business to claim Retirement Relief as you are still allowed to be employed in the company afterwards”.

Outside the family, relief is available up to €750k if you are under 66 or €500k (66+). 

For those planning on exiting under 55, there are other options. Entrepreneurial Relief works like Retirement Relief in reducing CGT to 10% on the gains from disposing of your business – but only when certain conditions are met.

If you decide to liquidate your company, as opposed to selling it, getting advice well in advance can be there difference between qualifying for reliefs and a hefty CGT bill.

Other key considerations for succession planning include:

• Termination payments
• Advance planning and communication with key staff members
• Advance discussions with your potential successor and or family members
• Your succession timeline
• Your business valuation
• Pension planning