The earlier you begin considering your options for retirement, the more options you ultimately have. This is especially the case when it comes to the disposal of business assets. As with all forms of tax relief, terms and conditions need to be considered and are more easily prepared for with notice. So, what is CGT retirement relief? Capital Gains Tax is the tax incurred on profits made from the disposing of a business asset. With CGT Retirement Relief you can have this tax 100% reduced, so you do not have to pay any CGT. It is worth noting that ‘retirement’ in this case does not actually mean that retirement is a condition of the relief. You could, in fact, continue to work with the company in any position after the disposal of the asset and still avail of this tax relief. ‘Retirement’ in this case refers solely to the fact that there is an age restriction on the relief.
How does Retirement Relief work?
There are two types of retirement relief available to individuals aged 55 or over who are disposing of a qualifying business asset: 1) disposing of an asset to a child, and 2) disposing of an asset to someone other than a child. A qualifying business asset refers to trading assets, a trading business or shares in a trading business.
- When disposing of a business asset to a child, capital gains tax is completely exempt if the disposal occurs between the age of 55 and 66. After 66 years of age, the tax relief is capped at €3 million. The child receiving the disposed asset could be adopted, a foster child or a niece or nephew. However, if the child goes on to dispose of the asset within the first 6 years of receiving it, there is a clawback on the retirement relief. If there is no money exchanged when the asset is transferred, then the market value is used to determine the CGT payable.
- If you dispose of your qualifying asset to someone other than a child (as described above), then there are different limitations. If you are between the ages of 55 and 66, you can receive full CGT relief if the sale does not exceed €750,000. If you are over the age of 66, then the limit is €500,000.
To avail of Retirement Relief, the individual must have worked in the company for at least 10 years, 5 years of which were fulltime employment.
Gift and Inheritance tax
If considering disposing of the asset by transferring it as a gift, it is worth remembering that your tax relief does not necessarily apply to the transferee. By inheriting your asset, they will almost certainly have to pay Capital Gains Tax, which is currently charged at 33%. Exercise care when transferring assets where capital allowances would have been claimed, and ensure you do not have a balancing charge that could end up being an additional liability.
There are many different kinds of tax relief schemes available for this someone in this position, each with its own benefits and drawbacks. For example, Entrepreneur Relief is a much more flexible form of tax relief available for an individual disposing of business assets. If you’re unsure if CGT Retirement Relief is suitable for you, we advise you speak to an impartial expert who can consider your specific situation and give you the information you need.