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.
