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How do I sell my business while minimising my tax liability?



Point to note - Although this is referred to as Retirement Relief by Revenue, you do not need to retire from the business.

For those aged 55 or older, you might be able to claim Retirement Relief. This is a relief on Capital Gains Tax (CGT) when disposing of any part of your business or farming assets.

If you are younger than 55, you might qualify for this relief where:

  • You are unable to continue farming or your profession due to ill health (You will need to provide medical evidence of the illness.)
  • You reach the age of 55 within 12 months of the disposal.

 

Before doing so you will need to consider and understand a number of points.

1. Types of Retirement Relief

Retirement Relief

 

There are two options when disposing your business and these are:

  1.  Disposal of your business to your child.
  2. Disposal to someone outside your family.

The term ‘child’ includes your:

  • son or daughter
  • stepchild or child of a civil partner
  • child adopted under, or recognised as adopted under, the Adoption Act 2010
  • child of a deceased child
  • niece or nephew who has worked full time in the business or farm for at least five years
  • foster child, whom you have maintained for at least five years before they were 18 years old. (This must be supported by the testimony of more than one witness.)

 

2. Disposing your business to your child

The amount of relief that you can claim depends on your age at the time of disposal.

For disposals made:

 – Up to 31 December 2013 you may claim full relief if you are 55 or older
 – From 1 January 2014 if you are:
         √ between 55 and 65, you can claim full relief
        √ 66 or older, the relief is restricted to €3 million.

Warning!

If your child disposes of the asset within six years, we will withdraw the relief. Your child must then pay CGT on the original disposal by you, in addition to the CGT on their own disposal.

3. Disposal of our business to someone outside of your family

Full relief can be claimed when the market value at the time of disposal does not exceed the threshold of:

    • €750,000 for disposals:
      • made between 1 January 2007 and 1 January 2014
      • on or after 1 January 2014 and you are under 66.
    • €500,000 for disposals on or after 1 January 2014 and you are 66 or older.

If the market value is more than the threshold, marginal relief may apply. This limits the CGT to half the difference between the market value and the threshold.

Remember if the husband and wife are both working directors and own the company between them, they may both be able to avail of this relief.

Warning

The €750,000 and €500,000 thresholds are lifetime limits. If you exceed this threshold relief will be withdrawn. You will be liable for CGT gains on all disposals.

.

4. Other issues

There are other reliefs and considerations that you should take into account when considering selling your business. 

These include Entrepreneur Relief which provides a rate of 10% for CGT on disposals of chargeable business assets, owned for three years or more. This currently has a lifetime limit of €1M. Disposals of development land and investment assets are excluded. For full details on this relief, you can examine the latest revenue guidance HERE.

 

 

TOP TIP

Remember – whether you decide to retire (sell) or not. Consider the tax implications of this exercise. Planning this, well in advance with your tax advisor is the best way of doing it correctly and also maximising all available reliefs to you.

In conclusion, given these points there is lots of scope for a tax efficient disposal of your business. There is a great book called "Built to Sell by John Warrilow" that I would recommend you read that gives great perspective and follows the journey of a business owner who effectively sells their business by preparing it in advance.
As always get good professional advice to help guide you through the process.

Author
John Carolan ACMA.

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