Over 55? Making sure you make the most of Retirement Relief

If you are a business owner in Ireland have you considered how you will step back from the business and fund your retirement?

It can be hard to do this and to see where you are going in the medium to long term. However, as you approach 55 it becomes even more important to annually review where your business is going. You need to plan towards your eventual sale, exit or transfer to the next generation. Or you may have identified staff members who are suitable to take on your business.

Ideally, you should set yourself up to avail of some important tax reliefs which will help you extract value from your business. A good one to look at is CGT Retirement Relief. This relief tends to apply where your business (chargeable business assets) will sell for in and around €1million euro. You would need to undertake further work to structure your transaction above this rough limit.

Many people look at this relief to fund their retirement. However note that retirement in the normal sense of the word is not actually a condition of the relief. CGT Retirement Relief may apply when taking money out of the business, even if you plan to keep running it.

 

What is Retirement Relief?

You can access CGT Retirement Relief in Ireland from 55 years of age, well before many people plan to retire. Business owners use CGT Retirement Relief to reduce taxes when they sell their business. They can also use it when transferring the business to the next generation. Additionally, you can use CGT Retirement Relief when closing the business down.

If you have plans to sell your business, you can face capital gains tax on the proceeds. CGT Retirement Relief can reduce capital gains tax on up to €750,000 of business asset sales, if eligible.

 

Planning beforehand

You must meet qualifying conditions to claim this relief. A lack of planning often prevents us from implementing the necessary steps. Below we have outlined some common pitfalls that can impact business owners access to CGT Retirement Relief.

 

Some common pitfalls:

 

Shareholdings

To qualify for CGT Retirement Relief in Ireland, you need to own at least 10% of your company's shares. In some cases you may need to own more than 25%.

You also need to have held the shares (qualifying assets) for at least 10 years. If you have not there may be other reliefs to explore. Sometimes we can assess a claim for other reliefs, such as Entrepreneurs Relief. This could substantially reduce your tax bill in a lot of cases.

 

Investment assets

Another issue that can sometimes prevent you accessing this relief is the nature of the trade in your company.

For example, it may need further investigation if you purchased the building or office where your business is located. This is just one example of a situation that may require additional scrutiny. Non trade assets cannot avail of retirement relief either.

 

Spousal shareholding

If your spouse has worked in the business with you there is a possibility of accessing double CGT Retirement Relief. You would need to plan carefully in advance in this case.

Remember that you must hold the shares for 10 years. The spouse needs to have worked in the business full time for the 5 years preceding a sale. Each claim for retirement relief is processed separately (i.e each person making a claim must meet the conditions for the relief).

The above assumes that you have a buyer lined up for your business. However, in a lot of cases this is not how a business owner exits. Perhaps you are considering selling or passing the business on to a staff member (or to the next generation).

 

What happens if the sales price is over €750,000?

CGT Retirement relief and marginal relief typically apply to selling business assets worth up to €1,000,000. Or potentially €2,000,000 if double retirement relief were to apply.

As we discussed, you can meet the relevant conditions you can receive sales proceeds of 'chargeable business assets' up to €750,000 without paying capital gains tax. If you were to achieve a sale price over this, partial relief may apply. We know this partial relief as marginal relief.

 

Get advice early 

Planning in advance is crucial if you are considering exiting your business. This way you can look at availing of tax reliefs which may be suitable to your circumstances. 

Getting tax advice prior to any transaction is important. Many of the tax reliefs mentioned here have conditions attached to them. We would be happy to meet with you to discuss your business and tax needs around business sales, business transfers, succession, exits and retirements.

 

 

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