Update To Include Change To Entrepreneur Relief Contained In Finance Bill 2020
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Talk to an expert in Cooney Carey about the possible application of Entrepreneur Relief.
What is Entrepreneur Relief?
Put simply it is a relief from the standard Capital Gains Tax (CGT) rate that would apply on the sale of a business. As highlighted below it applies to individuals disposing of certain business assets.
Nature of the relief
The relief provides that a 10% rate of CGT applies in respect of chargeable gains on disposals or part disposals of qualifying business assets, up to a lifetime limit of €1 million. This provides for a maximum tax saving of €230,000 when one compares the position to the CGT that would otherwise arise at the current rate of 33%.
Availability of the relief – Chargeable Business Assets
The reduced rate of CGT applies to disposals of “chargeable business assets”. This includes:
Conditions to the relief
Based on current tax legislation the business assets must have been owned by the relevant individual for a continuous period of three years in the five years immediately prior to the disposal of those assets.
Where a business is carried on by a company, individuals seeking to qualify for the relief must own not less than 5% of the shares in the qualifying company or 5% of the shares in a holding company of a qualifying group. A holding company means a company whose business consists wholly or mainly of the holding of shares of all companies which are its 51% subsidiaries. A qualifying group means a group where the business of each 51% subsidiary (other than a holding company) consists wholly or mainly of carrying on a qualifying business.
The individual must have been a director or employee of the qualifying company (or companies in a qualifying group) who is or was required to spend not less than 50% of his or her time in the service of the company or companies in a managerial or technical capacity and has served in that capacity for a continuous period of three years in the five years immediately prior to the disposal of the chargeable business assets.
Finance Bill 2020 Update
Section 23 of the Finance Bill 2020 provides an amendment to the position as set out above.
Previously an individual was required to hold at least 5% of the shares in a qualifying company for a period of at least three out of the five years immediately prior to a disposal. The amendment provides that the qualifying shareholding requirement can be met where an individual holds at least 5% of the shares in a qualifying company for a continuous period of at least three years at any time prior to the disposal. The amendment will apply to qualifying disposals from 1 January 2021.
Periods of ownership
Any period during which an individual owned shares in or was a director or employee of a company that qualified for relief under certain restructuring provisions (e.g., Section 586 TCA 1997), may be taken into account for the purpose of the three year ownership and director or employee requirements.
Periods of ownership of assets before incorporation of a business and periods of ownership of spouses cannot be aggregated for the three-year holding period requirement.
Anti-avoidance measures
Finance Act 2017 introduced anti avoidance measures the effect of which is to deny relief in certain situations.
These restrictions do not apply if the disposal was made for bona fide commercial reasons and did not form part of any arrangement or scheme, the main purpose of which was tax avoidance.
NEXT STEPS
For expert insight and analysis that is relevant to your own situaton talk to Cooney Carey.
We can create a bespoke tax plan to assist you in meeting your commercial objectives in a tax efficient manner.
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- shares held by an individual in a trading company; and
- assets owned by a sole trader and used in their trade.
- the holding of shares, securities or other assets held as investments;
- the holding of development land or letting of land; and
- assets owned personally, outside the company, even where such assets are used by the company.
Conditions to the relief
Based on current tax legislation the business assets must have been owned by the relevant individual for a continuous period of three years in the five years immediately prior to the disposal of those assets.
Where a business is carried on by a company, individuals seeking to qualify for the relief must own not less than 5% of the shares in the qualifying company or 5% of the shares in a holding company of a qualifying group. A holding company means a company whose business consists wholly or mainly of the holding of shares of all companies which are its 51% subsidiaries. A qualifying group means a group where the business of each 51% subsidiary (other than a holding company) consists wholly or mainly of carrying on a qualifying business.
The individual must have been a director or employee of the qualifying company (or companies in a qualifying group) who is or was required to spend not less than 50% of his or her time in the service of the company or companies in a managerial or technical capacity and has served in that capacity for a continuous period of three years in the five years immediately prior to the disposal of the chargeable business assets.
Finance Bill 2020 Update
Section 23 of the Finance Bill 2020 provides an amendment to the position as set out above.
Previously an individual was required to hold at least 5% of the shares in a qualifying company for a period of at least three out of the five years immediately prior to a disposal. The amendment provides that the qualifying shareholding requirement can be met where an individual holds at least 5% of the shares in a qualifying company for a continuous period of at least three years at any time prior to the disposal. The amendment will apply to qualifying disposals from 1 January 2021.
Periods of ownership
Any period during which an individual owned shares in or was a director or employee of a company that qualified for relief under certain restructuring provisions (e.g., Section 586 TCA 1997), may be taken into account for the purpose of the three year ownership and director or employee requirements.
Periods of ownership of assets before incorporation of a business and periods of ownership of spouses cannot be aggregated for the three-year holding period requirement.
Anti-avoidance measures
Finance Act 2017 introduced anti avoidance measures the effect of which is to deny relief in certain situations.
These restrictions do not apply if the disposal was made for bona fide commercial reasons and did not form part of any arrangement or scheme, the main purpose of which was tax avoidance.
NEXT STEPS
For expert insight and analysis that is relevant to your own situaton talk to Cooney Carey.
We can create a bespoke tax plan to assist you in meeting your commercial objectives in a tax efficient manner.
Maximise return – Minimise Tax leakage!