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Finance (No. 2) Act 2023 introduced a new Capital Gains Tax relief – “Relief for Investment in Innovative Enterprises.”

Its objective is to encourage investment in innovative small and medium start-up businesses entities.

This new relief provides a 16% CGT rate where a qualifying investor makes a qualifying investment in a qualifying company and subsequently disposes of those shares.

This new CGT Relief applies an effective rate of 16% on qualifying gains up to twice the value of their initial investment if the investment is made by an individual or 18% if the investment is made through a partnership.  As you can see both rates are very attractive when compared to the standard 33% rate of Capital Gains Tax.

There is a lifetime limit of €3 million for the Relief.

The Relief, calculated as 33% – 17% for individuals or 33% – 15% for partnerships, is available on the lowest of the following:

1. the chargeable gain,
2. twice the amount of the qualifying investment in the eligible shares disposed of or
3. the €3m lifetime limit less chargeable gains from all claims made under this Relief.

Conditions for the Relief include the following:

1. To qualify, the scheme involves a certification process whereby the investee company must obtain a Certificate of Going Concern and a Certificate of Commercial Innovation from the Revenue Commissioners. In addition, the company must be incorporated and tax resident in Ireland, an EEA state or the UK, be an innovative enterprise (i.e. based on a business plan, approved by Enterprise Ireland and demonstrate compliance with GBER), carry on or intend to carry on certain trading activities in Ireland and hold a tax clearance certificate.
2. The company must exist wholly for the purpose of carrying on relevant trading activities or holding shares in certain subsidiaries.
3. The company must not be controlled by another company and must be an unquoted SME.
4. Each company, which is a member of the relief group of which the company is a member, must be unlisted.

The criteria governing certificates of qualification are provided for under s600F TCA 1997.

For the investor, a qualifying investment under the terms of the relief includes:

1. A minimum qualifying investment is €20,000 or
2. An investment in the form of fully paid up newly issued shares in the qualifying company valued at a minimum of €10,000 where the investment represents at least 5% of the company’s ordinary share capital.
3. The investment cannot be for more than 49% of the qualifying company’s ordinary share capital, entitlement to profits available for distribution, voting rights and assets available for distribution.
4. The eligible shares have been held for at least three years from the date of the investment.

For the purposes of this Angel Investor Relief, the investor must not be “connected” with the investee company or any other company within the Relief Group.  In other words, in order to claim this Relief, the investor cannot be a partner, director or employee of the relevant company or have any interest in the share capital of this or any company which is a member of the Relief Group.  The investor must subscribe for shares in the investee company (i) for consideration wholly in cash, (ii) by way of a bargain at arm’s length and (ii) for bona fide commercial reasons.

IMPORTANT POINTS

• An investment will not be a qualifying investment unless it is based on a business plan and the company seeking to raise funds from the investor (i.e. the individual or partnership) must be able to provide a certificate of going concern and a certificate of commercial innovation issued by the Revenue Commissioners.

• Please be aware that the 5% shareholding threshold does not apply in circumstances where the qualifying investment is €20,000 or more.

• Angel Investor Relief is currently applicable in relation to the disposal of eligible shares issued on/before 31^st December 2026.

• New Angel Investor Relief will work with other CGT Reliefs including Retirement Relief and Revised Entrepreneur Relief. This means, priority will be given to either Retirement Relief or Revised Entrepreneur Relief if it provides a higher amount of tax relief to the qualifying investor than Angel Investor Relief. It is not possible, however, to claim Angel Investor Relief in conjunction with Revised Entrepreneur Relief or Retirement Relief.

• It is not possible to avail of Angel Investor Relief as well as E.I.I. in relation to the eligible shares.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

If you are facing retirement or redundancy, it is important to understand the tax treatment of your severance package. The following attract beneficial tax treatment:

1. Statutory redundancy payments
2. Ex-gratia Termination payments
3. Pension lump sums

Statutory redundancy payments

Statutory redundancy payments are tax exempt.  They are based on two weeks’ pay for every year of service plus one additional week’s pay with maximum weekly earnings capped at €600 per week.  Income in excess of €31,200 is ignored when calculating Statutory redundancy payments.

Ex-gratia termination payment

Lump sum payments paid by an employer on retirement or redundancy may be taxable.

All or part of the ex gratia termination payment may qualify for tax relief.

The termination payment tax reliefs are not available, however, to any payments made to an employee under the terms of their employment contract. In other words, any contractual payments made by the company to its employee are treated in the same way as a salary payment.

Only complete years are counted for purposes of the reliefs i.e. part of a year cannot be taken into account for the purposes of the calculation.

There are three types of tax reliefs available:

1. Basic Exemption – This exemption is calculated as €10,160 plus €765 for each complete year of service.

2. Increased Basic Exemption – The Basic exemption may be increased by a further €10,000 less the current actuarial value of any tax free pension lump sum receivable now or in the future from the company/occupational pension scheme. This relief is available provided the employee hasn’t claimed an exemption in excess of the Basic Exemption within the previous ten years.

3. Standard Capital Superannuation Benefit (SCSB) relief – This Relief is based on the employees’ average annual remuneration for the last 36 months up to the date of termination.

The tax free amount is calculated as follows:

(A × B) − C

15

where

A = the average remuneration for the last 36 months of service up to the date of termination.  The value of any taxable benefits can be included in the figure for emoluments.

B = The number of complete years of service.

C = Any tax free lump sum received or receivable under the employer/occupational pension scheme.

There is a lifetime cap of €200,000 on the tax-free amount of a termination payment an employee is entitled to receive.

The amount of the termination payment in excess of the relevant exemption/relief is liable to Income Tax and Universal Social Charge at the employee’s marginal rates.

There is no employee and employer’s PRSI payable on a termination payment.

Before making any decision, please keep in mind that claiming either (i) the Increased Basic Exemption or (ii) the SCSB Relief can affect an employee’s ability to receive a tax-free lump sum from their employer pension scheme on retirement.

Pension Lump Sums

When you retire, you can opt to take a tax-free retirement lump sum which is capped at €200,000 under current legislation.

The amount between €200,001 and €500,000 is taxable at the standard rate of tax being 20%

Any amount over €500,000 is taxed under the Pay As You Earn system at the taxpayer’s marginal tax rate of 40%.

For further information on Termination Payments, please click: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-05-19.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.