Retirement Relief and benefits

Summary

In this video, Icon Accounting explains the benefits of retirement relief for contractors running their own limited companies. The relief offers a zero-rate capital gains tax on the sale of a business or its shares, under certain conditions such as age, shareholding, and company involvement. Contractors can also avail of this relief while liquidating their companies. The video highlights how contractors can save on taxes by leveraging retirement relief, showing an example of how much tax could be saved over ten years. For more details, Icon Accounting encourages contractors to contact them for personalized advice.

Takeaways

• 😀 Retirement relief is a zero-rate capital gains tax applied to the sale or disposal of shares in your business.
• 😀 Capital gains tax (CGT) is typically charged at 33%, but retirement relief reduces this to 0%.
• 😀 To qualify for retirement relief, the gain on the sale must be less than €750,000, with reduced limits for those over 65 (€500,000).
• 😀 You must own more than 25% of the company shares to qualify for retirement relief, or at least 10% for family companies with more than 75% family ownership.
• 😀 You must have held the shares for at least 10 years and been a director of the company during that time.
• 😀 A full-time commitment to the company for at least 5 of the last 10 years is required to claim retirement relief.
• 😀 Retirement relief applies when liquidating a limited company, provided it is a qualifying trading company.
• 😀 Contractors working through a private limited company can qualify for retirement relief if they meet the conditions.
• 😀 Liquidation of a company involves appointing a liquidator to wind up the company and distribute funds to shareholders. This process costs around €3,000 plus VAT.
• 😀 Contractors still have to pay corporation tax on company profits, but can save significantly on personal taxes by utilizing retirement relief.
• 😀 A contractor can save a substantial amount by liquidating their company with retirement relief, which can lead to tax savings of over €100,000 over 10 years, compared to paying income tax.

Q & A

What is retirement relief and how does it benefit contractors?

Retirement relief is a tax advantage that allows contractors to pay zero capital gains tax on the sale of their business or disposal of shares in the business, provided they meet certain conditions.

What is capital gains tax, and what is the standard rate?

Capital gains tax is a tax on the profit you make from selling or disposing of assets such as property or shares. The standard capital gains tax rate is 33%.

How does retirement relief differ from the standard capital gains tax rate?

When retirement relief is applied, the capital gains tax rate is reduced to 0%, which can result in significant tax savings compared to the standard 33% rate.

What are the main conditions to avail of retirement relief?

To qualify for retirement relief, the gain from the sale must be under 750,000 euros (or 500,000 euros if over 65), you must own more than 25% of the company, have held shares for at least 10 years, and have worked full-time in the company for 5 of the last 10 years.

Can a contractor working through a private limited company claim retirement relief?

Yes, contractors who have a relevant trading company can claim retirement relief, as they meet the criteria for qualifying for the relief.

Can a contractor liquidate their company and avail of the zero percent tax rate?

Yes, contractors can liquidate their company and apply for the zero percent capital gains tax rate on any funds remaining in the company, provided they meet the necessary criteria.

How does the liquidation process work, and how much does it cost?

The liquidation process involves appointing a liquidator to wind up the company and distribute funds to shareholders. The cost for this process is approximately 3,000 euros plus VAT, which can be written off as a business expense.

Does retirement relief work for all contractors?

No, retirement relief is only tax-efficient for contractors who have built up excess funds in their company and meet the specific conditions outlined in the script.

Do contractors still have to pay corporation tax when liquidating their company?

Yes, contractors still need to pay corporation tax on their company’s profits, even if they avail of retirement relief.

How much tax could a contractor save by using retirement relief, and can you provide an example?

A contractor could save a significant amount in taxes. For example, based on a contractor earning a retained profit of 35,400 euros per year over 10 years, retirement relief could help them save 111,914 euros in taxes compared to paying income tax on the same amount.