If you’re planning on selling your business so you can invest in your next venture, but you haven’t looked into availing of Entrepreneur Relief, then you’re missing a trick! Entrepreneur Relief is a fantastic tax benefit that helps business owners in Ireland to build wealth in a tax-efficient way. Sound interesting? We thought so! That’s why we decided to have a chat tax specialist Michael Ryan from Gara Ryan to find out everything there is to know about Entrepreneur Relief. Below are all the key bits of information we think you should know before applying for this great tax relief.
Firstly, what is Entrepreneur Relief?
The purpose of Entrepreneur Relief is to encourage serial entrepreneurs to start new businesses. It means that as a business owner, you can work in the company that you own and then sell it while making great tax savings, provided you have been working there for three years. Entrepreneur Relief provides you with the benefit of only being taxed 10% Capital Gains Tax on the first €1 million of the sale. This is a substantial saving considering that without Entrepreneur Relief you would have to pay either the full 33% Capital Gains Tax or, if the money is treated as income, 55% income tax.
Entrepreneur Relief provides you with the benefit of only being taxed 10% Capital Gains Tax on the first €1 million of the sale.
But how does Entrepreneur Relief work and can I avail of this tax benefit?
Let’s get down to the finer details of this tax relief by answering some common questions business owners have.
What is the tax relief limit?
Entrepreneur Relief is capped at €1 million. We hope that in the future this limit will be increased because in England their cap is £10 million and when Entrepreneur Relief was first introduced here there was an indication that it would become more lenient eventually. However, for now, €1 million is the lifetime limit.
Are you an entrepreneur in the 30 – 55 age bracket?
Entrepreneur Relief is particularly helpful for young business owners because in the past Retirement Relief would have been the tax-saving strategy of choice, but there is one glaring problem with this tax relief – the age restriction. Typically, you would have to be of retirement age (55 or older) to benefit from this type of tax relief. On the other hand, Entrepreneur Relief has no age restriction!
How many companies do you have?
Entrepreneur Relief is best suited to business owner’s that have one company. This is because one of the conditions of Entrepreneur Relief is that as the business owner you have to be spending at least 50% of your time working in the company which you plan to sell. If you have multiple companies, it might be tricky to meet this requirement. However, that doesn’t mean it is impossible. You would simply have to consider conducting some vigilant presale planning.
Don’t want to completely sell out of your company?
You don’t have to. It is worth noting that you don’t have to sell out of your business completely to avail of this tax relief. You can simply sell a portion of your shareholding, say 30% of your company, and you can get Entrepreneur Relief on those proceeds. Provided you haven’t breached the €1 million ceiling, there is nothing prohibiting you to availing of Entrepreneur Relief again at a later stage.
Thinking about selling your company to another company that you own?
In the beginning, this tax relief didn’t have as many restrictions as it does today so you may have heard a few stories of business owners selling their company to another company which they own and still getting Entrepreneur’s Relief. This won’t work anymore. You can’t sell a portion of your company to another company that you own either.
What about selling shares for venture capital?
If a company was bringing in venture capital money and if the venture capitalist was willing to purchase shares from the shareholder, then you could still avail of Entrepreneur Relief. Similarly, if your employees want to buy shares from your company, this tax relief is still applicable. However, if you are selling shares to a connected party, such as your marital partner, then you cannot avail of Entrepreneur Relief.
Do holding companies qualify?
Yes, a holding company can get this tax relief, however having a dormant subsidiary can be problematic. All subsidies should be trading if you want to get Entrepreneur Relief and if this is not the case, then it would be wise to plan ahead and shut down any dormant subsidiaries before applying.
Can you liquidate your company and get Entrepreneur Relief?
Let’s say you come to retirement age and you want to wind down business activity and sell off your assets and stocks. Can you get Entrepreneur Relief on the liquidation proceeds? Yes, as long as you liquidated the company properly, the company qualified for Entrepreneur Relief and all trade has ceased, nothing is stopping you from getting tax relief.