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Understanding Entrepreneur Relief in Ireland

If you’re an entrepreneur in Ireland, you’ve likely heard of Entrepreneur Relief. But just how can your business benefit from it? Let’s explore everything you need to know about this tax benefit, from what it is to how to claim it.

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What is entrepreneur relief?

Entrepreneur Relief is a tax relief scheme in Ireland designed to support entrepreneurs. It provides a reduced rate of Capital Gains Tax (CGT) on the disposal of certain business assets, making it a valuable tool for those looking to sell their business or shares.

What is capital gains tax?

Capital gains tax in Ireland (CGT) is a tax applied to the profit realized from the sale or disposal of an asset that has grown in value. Essentially, it’s the increase in value of the asset, not the total amount you receive from the sale, that is subject to tax.

CGT example: Let’s say you bought shares in a company for €10,000. After a few years, the value of these shares increased, and you decided to sell them for €50,000. The gain you made is €40,000 (€50,000 – €10,000).

In Ireland, the standard rate of CGT is 33%. So, you would have to pay 33% of €40,000, which is €13,200, in Capital Gains Tax.

This doesn’t take into account any reliefs or allowances you might be entitled to, such as Entrepreneur Relief.

How does entrepreneur relief work?

Entrepreneur Relief works by reducing the rate of CGT that you have to pay when you sell qualifying business assets. Although the standard rate of CGT in Ireland is 33%, with it, you pay a reduced rate of 10% on the first €1 million of gains.

What assets qualify for entrepreneur relief?

Qualifying assets for Entrepreneur Relief include shares in a trading company or holding company of a trading group, assets used for the purpose of a business, or personally held assets used in a company you have a share in.

Qualifying Assets for Entrepreneur Relief (1)

Who can apply for entrepreneur relief?

This is available to individuals (not companies) who have owned the qualifying business assets for a minimum of three years.

Why claim entrepreneur relief?

Claiming can significantly reduce the amount of tax you have to pay when selling your business or shares, leaving more money in your pocket. 

How to qualify

To qualify for Entrepreneur Relief, you need to meet certain criteria. These include owning the business assets for at least three years and the assets must be in use for the business throughout that period.  

How to claim

To claim Entrepreneur Relief, you need to complete the CG1 form (if you’re a PAYE taxpayer) or Form 11 (if you’re self-employed) and submit it to the Revenue Commissioners.

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How to calculate your entrepreneur relief amount

Calculating your CGT/Entrepreneur Relief amount involves subtracting the original cost of the asset from the sale price to determine the gain, then applying the relevant tax rate.

For example: Let’s say you’re an entrepreneur who started a business several years ago. You initially invested €200,000 into your company. Over the years, your business has grown and become successful, and now you’ve decided to sell it. You find a buyer who agrees to purchase your business for €2,200,000.

The gain you’ve made from selling your business is €2,000,000 (€2,200,000 sale price – €200,000 initial investment).

Without any reliefs, you’d have to pay CGT at a rate of 33% on this gain, which would amount to €660,000.

However, with Entrepreneur Relief, you may be eligible for a reduced CGT rate of 10% on the first €1 million of gains. So, instead of paying €660,000 in CGT, you’d only pay €430,000 (10% of €1,000,000 + 33% of the remaining €1,000,000).

This means that by claiming, you could save €230,000 in taxes. This is a simplified example and you could potentially save even more tax by speaking to an experienced tax planning accountant at Around Finance.

When to claim entrepreneur relief?

You should claim Entrepreneur Relief in your annual tax return for the year in which you disposed of the qualifying assets.

Revised entrepreneur relief

The scheme has undergone revisions over the years to make it more accessible and beneficial to entrepreneurs. The most significant change was the reduction of the CGT rate from 20% to 10%.

Need help claiming?

An online accountant in Ireland can help you get to grips with this tax scheme, determine if you qualify, and assist you in making a claim.

Remember, while Entrepreneur Relief can provide significant tax savings, it’s important to get professional advice to ensure you meet all the requirements and use it correctly. Contact the Around Finance teams if your have any further questions.

FAQs

Can you claim entrepreneurs relief and retirement relief?

Yes, it’s possible to claim both, but restrictions apply when both reliefs are claimed on the same asset. Contact us at Around Finance for guidance on how to take advantage of each relief benefit. 

What is entrepreneurs relief?

It is a tax relief scheme in Ireland that provides a reduced rate of Capital Gains Tax on the disposal of certain business assets.

When was entrepreneurs relief introduced?

It was introduced in Ireland in the Finance Act 2013 to support entrepreneurs and stimulate economic activity.

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