Dreaming of selling your Irish business one day?
Ensure your retirement dreams don’t become a tax nightmare by planning well in advance. Here’s a quick guide to CGT and Retirement Relief in Ireland.
Capital Gains Tax (CGT) in Ireland is 33%. This hefty sum is paid on any capital gain made when you dispose of an asset, including a business’s shares, securities or Chargeable Business Assets (CBAs) such as land, buildings, plant & machinery and goodwill.
Many Irish business owners underestimate what CGT savings are available and move too late to maximise those, as Paul O’Donovan explained at our conference earlier this year. He stresses it’s never too early to plan how to make a tax-efficient exit, and that companies considering their financial planning for 2023 should also use this time to review their structure with their financial advisors.
“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.”
Retirement Relief and the over-55’s
One key aspect to consider, if you will be over 55 at the time of retiring, is qualification for retirement relief. Retirement Relief from CGT can apply to the disposal of all (or part of) assets including business premises, farm land, and family trading company shares.
The relief is generous but there are stringent conditions that need to be met to qualify. Meeting them requires advance planning. The business owner must be:
- Over 55 years on the date of disposal (or under 55 for certain health reasons)
- Have been a working director for minimum 10 years & full-time for at least 5 of those
- Hold at least 25% of voting rights
You don’t have to retire to qualify for the relief, Paul notes. “You are not required to fully retire – you are still allowed to be employed in the company afterwards.”
Considering both the timing and age is crucial if you are disposing to a child or qualifying family member. You can avail of full CGT relief between the ages of 55-65. That relief is restricted to €3 million at 65 years and there is a claw back if child disposes of the assets within 6 years, which payable by the child.
Outside the family, relief is available up to €750k if you are under 66 or €500k (66+).
Under 55 and entrepreneurs
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, getting sound financial advice well in advance can be the difference between qualifying for reliefs and a hefty CGT bill.
Whether you’re planning big things in 2023 or the ten years following it, whether that’s restructuring, growth or moving on gracefully, having the correct business structure in place is imperative, Paul advises. “Even these changes are years down the road, reviewing your structure now can make a big difference.”
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Need expert advice on structuring and succession planning? We provide objective and specialist advice on retirement and pensions, CGT and tax, succession, exits, mergers and acquisitions. Whatever stage you are at, we can help. Call us at 021 4321799 or email info@paulodonovan.ie.
