Entrepreneur Relief

Summary

Entrepreneur Relief offers a reduced Capital Gains Tax (CGT) rate of 10% for eligible business owners and contractors in Ireland. To qualify, individuals must meet certain criteria, including owning more than 5% of a company and being actively involved in the business for at least three out of the last five years. The relief is applicable when liquidating a business, with the liquidation process costing around €2,500-€3,000. Contractors can save significantly on taxes, with potential savings of up to €43,000 over five years. For personalized advice, Icon Accounting offers consultations and tailored calculations.

Takeaways

• 😀 Entrepreneur Relief reduces the Capital Gains Tax (CGT) rate on the sale of a business or shares from 33% to 10%.
• 😀 This relief also applies when a company ceases trading and is liquidated.
• 😀 To qualify, the gain on sale must be less than 1 million euros.
• 😀 Contractors must own at least 5% of the company’s shares to be eligible for Entrepreneur Relief.
• 😀 You need to have owned the shares for at least 3 out of the last 5 years to qualify.
• 😀 You must have been a director or employee of the company for 3 out of the last 5 years, working more than 50% of your time in the business.
• 😀 Non-trading assets, investments, and securities cannot be considered when calculating the relief.
• 😀 Contractors working through their own limited company can avail of this tax relief, but those in umbrella companies cannot.
• 😀 The cost of liquidating a company is around €2,500 to €3,000, which can be written off as a business expense.
• 😀 If you liquidate your company, the remaining funds in the company can still be subject to the 10% CGT rate if Entrepreneur Relief applies.
• 😀 A contractor can save significant taxes through Entrepreneur Relief—one example shows savings of over €43,000 over five years.

Q & A

What is entrepreneur relief?

Entrepreneur relief is a reduced rate of Capital Gains Tax (CGT) applied to the sale of a business or its shares, as well as for companies that cease trading and liquidate. The CGT rate is lowered to 10%, significantly reducing the tax burden on the sale or liquidation profits.

What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) is the tax on the profits made from selling assets like property or shares. The standard CGT rate is 33%, but entrepreneur relief reduces it to 10% for eligible business sales or liquidations.

What are the conditions to qualify for entrepreneur relief?

To qualify for entrepreneur relief, you must meet several conditions: the gain from the sale must be under €1 million, you must own more than 5% of the company shares, have owned them for at least three years out of the last five, and be a director or employee working more than 50% of your time in the company.

Can a contractor working through their own limited company avail of entrepreneur relief?

Yes, contractors operating through their own private limited company are considered to have a relevant trading company and can avail of entrepreneur relief, provided they meet the eligibility criteria.

How can a contractor liquidate their company and claim the 10% CGT rate?

To liquidate a company and claim entrepreneur relief, the contractor must appoint a liquidator who will wind up the company. The liquidation costs typically range from €2,500 to €3,000, which can be written off as a business expense.

What is the process for appointing a liquidator?

The contractor must hire a liquidator who will handle the legal and financial steps required to close the company, distribute any remaining assets to shareholders, and ensure the company is legally dissolved.

Are there any tax savings when liquidating a company and availing of entrepreneur relief?

Yes, significant tax savings can be achieved by liquidating the company and claiming entrepreneur relief. For example, a contractor with retained profits of €35,400 per year could save €43,010 in taxes over five years compared to paying income tax on the retained profits.

Can you still claim entrepreneur relief if you are in an umbrella company?

No, entrepreneur relief is only available to contractors with their own personal limited company. Contractors working through an umbrella company do not qualify for this tax benefit.

Do contractors still need to pay corporation tax when claiming entrepreneur relief?

Yes, even if a contractor claims entrepreneur relief, they still need to pay corporation tax on their company's profits. The corporation tax rate is currently 19%.

Can a contractor continue working after liquidating their company?

No, to claim entrepreneur relief, the company must genuinely cease trading. If the company continues to operate in any capacity after liquidation, the Revenue may challenge the validity of the entrepreneur relief claim.