Revised Entrepreneur Relief

According to eBrief No. 030/21, Revenue’s Revised Entrepreneur Relief Manual has been updated to reflect an amendment made to the relief under Section 597AA CTA 1997 by section 24 Finance Act 2020.

Revised Entrepreneur Relief is a relief from the standard Capital Gains Tax rate of 33% that would normally apply to the sale of a business.

It applies to individuals disposing of certain business assets.

The relief provides for a 10% rate of CGT to apply to chargeable gains arising on disposals or part disposals of “qualifying business assets” up to a lifetime limit of €1 million.

The term “chargeable business assets” includes:

• shares held by an individual in a trading company and
• assets owned by a sole trader and used for the purposes of his/her trade.

The term “chargeable business assets” excludes:

• shares, securities or other assets held as investments
• development land
• goodwill disposed of to a connected company
• assets which when disposed of would not give rise to a chargeable gain.
• assets owned personally, outside the company, even in circumstances where such assets are used by the company or
• shares or securities in a company where the individual remains connected with that company following the disposal.

The conditions include:

• the qualifying business assets must have been owned by the relevant individual for a continuous period of three years in the five years immediately prior to the disposal of those assets.  It is important to remember that periods of ownership by spouses cannot be aggregated for the purpose of the three year continuous ownership condition.  It should also be borne in mind that periods of ownership of assets before and after incorporation of a business cannot be aggregated for the purpose of the  three year continuous ownership condition.
• where a business is carried on by a company, individuals seeking to qualify for the relief must own not less than 5% of the shares in the qualifying company or 5% of the shares in a holding company of a qualifying group.  The requirement for an individual to have owned a holding of at least 5% of the ordinary share capital for a continuous period of three years in the five years immediately prior to the disposal has been amended by section 24 Finance Act 2020, so that the shares will qualify for relief if they were held for a continuous period of three years at any time prior to the disposal of those shares. 
• For the purposes of accuracy and completeness, a holding company means a company whose business consists wholly or mainly of the holding of shares of all companies which are its 51% subsidiaries and a qualifying group means a group where the business of each 51% subsidiary, other than a holding company, consists wholly or mainly of carrying on a qualifying business.
• The amendment in section 24 Finance Act 2020 applies to disposals of chargeable business assets made on or after 1st January 2021.
• The individual must have been a director or an employee of the qualifying company or companies in a qualifying group and is required to spend at least 50% of his or her time working for the company or companies in a managerial or technical role and has served in that capacity for a continuous period of three years in the five years immediately before the disposal of the chargeable business assets.

For further information, please click the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-06-02b.pdf