Entrepreneur Relief is a tax relief available to individuals who dispose of qualifying business assets in Ireland.
This relief was introduced to encourage entrepreneurship and to incentivise individuals to invest in and grow Irish businesses.
What is Entrepreneur Relief fund in Ireland?
Under the Entrepreneur Relief, eligible individuals can avail of a reduced Capital Gains Tax (CGT) rate of 10% on the disposal of qualifying business assets, up to a lifetime limit of €1 million. This is reduced from the normal rate of 33%. The rate is 20% for disposals from 1 January to 31 December 2016.
Availability of the Entrepreneur relief
Qualifying business assets:
- Shares held in a trading company
- Owned by a sole trader and used in their trade
Qualifying business: A business other than:
- Holding of securities or other assets as investments
- Holding of development land
- Development or letting of land
Qualifying company operated by an individual:
- You must have been a director or employee of the qualifying company or companies in a qualifying group.
- You must have spent no less than 50% of your time in the service of the company in a managerial or technical capacity.
- You must have served in that capacity for a continuous period of three years in the five years prior to the disposal of the business assets.
Qualifying company operated by a group:
- You must have owned at least 5% of the ordinary shares in the company or a holding company of a qualifying group.
- Relief won’t apply where there is a dormant company in a group or one of the subsidiaries is not a trading company.
How to qualify for the Entrepreneur relief?
- You must have owned the business assets for a continuous period of three years prior to disposal.
- The asset must have been used for a qualifying business.
- In the case of shares, you must have owned at least 5% of the ordinary shares for a continuous period of three years.
- There is a lifetime limit of €1 million on the gains that you can claim relief on.
- Only gains on disposals made on or after 1 January 2016 are counted in the limit.
Disposals not eligible for relief:
- Shares, securities or other assets held as investments
- Development land
- Assets on the disposal of which no chargeable gain would arise
- Assets personally owned outside a company, even where such assets are used by the company
- Goodwill which is disposed of to a connected company
- Shares or securities in a company where the individual remains connected with the company following the disposal.
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How to claim the Entrepreneur relief?
Calculate your CGT with the reduced rate of 10% on gains from qualifying business assets.
Entrepreneur Relief is a valuable tax relief available to Irish business owners who dispose of qualifying business assets.
Situations suitable for use of the Entrepreneur relief:
Subject to meeting the relevant conditions and also certain pre-structuring steps, relief can also apply to the following circumstances:
- certain share buybacks;
- company liquidations;
- partnership assets; and
- double holding company structures.
It’s important to ensure that you meet all the qualifying criteria and conditions to avail of the relief.
If you have any doubts, it’s advisable to seek professional advice to ensure compliance with all relevant tax laws and regulations.