Entrepreneur Relief

The 10% Rate of Capital Gains Tax: Entrepreneur Relief

The availability of a 10% rate for Capital Gains is a tax break which every entrepreneur should try to exploit. The 10% rate is significantly below the 33% standard rate of CGT that otherwise applies to chargeable gains. It may well present a budding entrepreneur with an opportunity to generate a lightly taxed capital sum and in so doing amass that all-important starting capital on which to found a business career.

The Relief

From 1 January 2017 gains made by a relevant individual on the disposal of chargeable business assets are subject to a 10% rate of CGT provided that certain conditions are met. The relief is limited to lifetime gains of €1m.

Relevant Individual

This means an individual who has been the beneficial owner of the chargeable business assets for a continuous period of not less than 3 years in the 5 years immediately prior to the disposal of those assets.

Chargeable Business Asset

This is an asset, including goodwill which:

  • is used for the purpose of a qualifying business carried on by an individual, or
  • is a holding of ordinary shares in:

-a company whose business consists wholly or mainly of carrying on a qualifying business, or

– a holding company of a qualifying group

in respect of which an individual –

– owns not less than 5% of the ordinary share capital, and

– is a qualifying person in respect of that company or, if that company is a member of a qualifying group, of one or more companies that are members of the group.

Chargeable business assets however do not include:

– shares (other than shares in a company whose business consists of a qualifying business or a holding company in a qualifying group), securities or other assets held as investments,

– development land, or

– assets on the disposal of which any gains would not be subject to CGT.

Qualifying Business

This means a business other than:

– the holding of securities or other assets as investments,

– the holding of development land,

– the development or letting of land.

Qualifying Group

This means a group, the business of each 51% subsidiary (other than a holding company) in which consists wholly or mainly of the carrying on of a qualifying business.

Qualifying Person

This means an individual who is or has been a director or employee of a company (or companies in a qualifying group) who:

-is or was required to spend not less than 50% of his/her working time in the service of the company/companies in a managerial or technical capacity,  and

– has served in that capacity for a continuous period of 3 years in the period of 5 years immediately prior to the disposal of the chargeable business assets of which the disposal of shares in the company/ companies forms the whole or part.

If you have questions on Entrepreneur Relief or would like further information please contact us.

*This tax alert is written in general terms and should not be relied on as a comprehensive summary of the relevant tax law.  Professional taxation advice should always be sought before any action is taken.

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