As a Business Owner, Is Time Escaping You?
If a person incurs a capital gain on retirement (typically from selling their shares in their business) they may avail of relief up to €750,000 and pay no Capital Gains Tax.
Planning on retiring or selling your business?
If a person incurs a capital gain on retirement (typically from selling their shares in their business) they may avail of relief up to €750,000 and pay no Capital Gains Tax. Now with effect from 1st January 2025, the upper age limit is extended to 70 from its previous age of 66.
Some key elements of these changes that are coming are as follows:
Retirement Relief - What is it?
Retirement Relief reduces Capital Gains Tax (CGT) when you sell business assets or company shares. To be eligible, you need to be at least 55 years old and selling or transferring assets used in your business. Additionally, you must have been a working director of the company for 10 years and a full-time director for at least 5 years before the transfer. This full-time director requirement can be challenging for some, particularly if they serve as directors in multiple companies and can't meet the full-time criteria. Recent changes in the Finance Bill 2023 will affect the rules for this relief, starting from January 1, 2025.
Disposals to Children
Currently, if you are 55 to 65 years old and you're transferring assets to your child, you can claim full relief. If you're 66 or older, the relief is limited to €3 million. With the new rules, the limit for those aged 55 to 69 will be €10 million, and for those 70 or older, it will be reduced to €3 million.
Disposals to Others
The present rule allows full relief up to €750,000 for disposals made between ages 55 and 65. After age 65, the limit decreases to €500,000. The new regulations will maintain the €750,000 limit up to age 69, but the €500,000 cap will apply from age 70 onward.
How could this effect me?
If you're 62 and own a company valued at €25 million, you're eligible for Retirement Relief and can avoid Capital Gains Tax (CGT) when transferring the company to your children. If you proceed with the transfer in 2024, you won't face CGT charges. Delaying the transfer to 2025 could result in a CGT of nearly €5 million.
Given the complexity and the impact of upcoming tax changes, it’s important to begin the transfer process without delay. You will need to consult with your tax specialist and be proactive in seeking professional advice for your own specific circumstances.
When should I take action?
Regarding whether you can delay action until December 2024, it's advisable to start now. Changes in tax rules effective January 1, 2025, mean it's crucial to plan ahead for such a significant transfer. Properly transferring a business involves many considerations: Deciding who in the family will own and manage the business. Managing the expectations and roles of lenders, suppliers, and customers. Reviewing the company’s non-operational assets and surplus cash. Addressing potential tax obligations including CGT, capital acquisitions tax, and stamp duty. Determining how to fund any resulting tax liabilities.
Planning to exit your business in the future means you will need to have your accounts in order and up to date.
Need a great accounts team in your corner. Why not look at joining many other successful business’s who have outsourced their accounts to Solve.
How Solve Outsource can help?
We have friendly and expert staff who can help companies understand and meet the challenges ahead.
Author..
John Carolan ACMA, CEO of Solve Outsource
Contact Email: john@solve.ie
