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Entrepreneur Relief in Ireland: A Guide To Tax Breaks for Businesses

18 May by Coffey & Co

As an entrepreneur, there’s nothing you’d like more than the opportunity to save a few expenses. One of the tax reliefs you can leverage to save some money is the Capital Gains Tax entrepreneur relief. The relief was introduced in 2013 under the Finance (No 2) Act 2013 and revised in 2015. It aims to encourage entrepreneurs to establish new businesses by offering them relief from CGT when disposing of certain business assets.

In this guide, we’ll explain what Entrepreneur Relief is and how you can claim it so you don’t miss the opportunity to reduce your tax bill. 

What is entrepreneur relief?

If you’re planning to exit or sell your business, Entrepreneur Relief should be part of your succession strategy and tax planning. It’s a great tax benefit that will help you to extract value from your business, invest in a new one, and build wealth in a tax-efficient way. But before we define what Entrepreneur Relief is, what is the Capital Gains Tax on which it is based?

The Capital Gains Tax (CGT) is a tax applied on the profit you make from the disposal of certain assets. In Ireland, the CGT is usually 33%.

Entrepreneur Relief is a relief that enables you to pay a reduced CGT as opposed to the normal 33% rate. You can leverage the relief to pay only a 10% tax for profits up to made €1 million from selling an asset. Let’s say you sell your business for €1 million, the amount of CGT due under the normal rates is €330,000. But with Entrepreneur Relief, you would only pay €100,000- saving €230,000 off your CGT liability.

Entrepreneur Relief works in the same way as Retirement Relief, but the latter is only available to entrepreneurs over 55 years old. If you’re below 55 years, Entrepreneur Relief will be more suited to you.

How do you qualify for entrepreneur relief?

Unlike Retirement Relief, Entrepreneur Relief is beneficial to entrepreneurs at all stages of their lives who wish to dispose of qualifying business assets up to a lifetime limit of €1 million. It allows you to dispose of assets and extract funds from your business in a tax-efficient manner. 

However, there are certain conditions you have to meet before applying for Entrepreneur Relief. They include:

  • The business must be trading. The relief can’t be used for development land, shares securities, and holding/ letting properties. 
  • You must have owned the asset for three continuous years in the last five years prior to the disposal.
  • You must be actively involved in the business. You must have more than 5% shareholding, be a director/ employee of the company and spend more than 50% of your time there for three continuous years, or hold a managerial/ technical position in the company for a period of three years. 

Holding companies can also apply for this tax relief. However, dormant subsidiaries do not qualify for Entrepreneur Relief so you should shut down any dormant subsidiaries before applying. 

How Coffey & Co accountants can help

Entrepreneur Relief can be a great leverage to use to save on your tax bill. You should considerably plan your business to ensure your assets qualify for such tax reliefs. 

At Coffey & Co, we can help you determine your eligibility for Entrepreneur Relief, calculate your tax liability, and submit returns on time. Our team of tax experts will identify appropriate opportunities for tax planning and assist you in structuring your businesses to maximise the potential tax savings under this tax relief.

Schedule an appointment to learn more.

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