Budget 2016 Capital Gains Tax Incentive For Entrepreneurs

Budget 2016 Capital Gains Tax Incentive For Entrepreneurs

Revised CGT Rate for Entrepreneurs 

A reduced rate of 20% of Capital Gains Tax will apply in respect of chargeable gains on a disposal of chargeable business assets made by an individual on or after 1 January 2016. The relief can apply up to a lifetime limit of €1,000,000 per individual.

Who qualifies for the reduced rate?

The reduced rate will be available to the individual owners of a trade or business. These are owners or founders of private unquoted companies, sole traders, and farmers.

What is a Business Asset?

The reduced rate will apply to disposals of assets which comprise the whole or a distinct part of the trade or business. The assets must have been held by that disposing individual for at least 3 years prior to the disposal. Cash and certain other assets do not qualify.

Restrictions on the reduced rate?

The reduced rate will not be available to companies in respect of business disposals.

The reduced rate will not apply to the disposal of a business consisting of dealing in or developing land, the letting of land or buildings or investment companies.

Where the disposed business is carried out by a private company an individual seeking to qualify for the reduced rate must own at least 15% of the shares in that company or where it is held by a holding company at least 15% in the holding company which must own 100% of the company. In addition the shareholder must have been a full time working director of the company for at least three years prior to the disposal.

Where the assets of a company include significant non-qualifying assets such as cash, careful planning may be required to avoid the dilution of the relief.

Impact of the reduced rate?

The UK  operates a 10% CGT rate on capital gains made by individuals up to £10 million. The Irish authorities feared that such a high threshold of €10 million in Ireland would not only be costly to the Exchequer but would disproportionately favour entrepreneurs over remuneration taken as wages or dividends.

Whilst it is welcomed that the reduced rate has been introduced, it is yet to be seen if it provides a stimulus for persons to start a business.

For further information on the above, please contact Setanta Landers at setantalanders@reddycharlton.ie