Retirement relief - calculation of marginal relief

Brendan Burgess

Brendan Burgess

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A friend has claimed that the first €750k of the proceeds of sale of a business is exempt from CGT. I have told him that I don't think that this is correct. But I have not been involved in such a calculation before.

(b) If you dispose of your business or farm to any person other than a child within (a), the gain is exempt if the proceeds do not exceed €750,000. If the disposal proceeds exceed €750,000, marginal relief ensures the CGT may not exceed half the difference between the proceeds and €750,000.

Am I interpreting this correctly?

Let's say you sell the business for €2m.

The CGT would be 33% or €666,000

But it may not exceed half the difference between €2m and €750k.

The difference is €1.25m

Half the difference is €625k

So you would pay €625k tax.



If you sell it for €1m
The difference would be €250k
You would pay €125k CGT.
 
Spot on Brendan.

Subject of course to meeting the other conditions and being under 66 years of age (once you hit 66, €500k is the magic number).
 
You should also confirm it he would be entitled to the 10% CGT rate under the Entreprenuer relief.
 
Hi Srase

Thanks for that. I had not considered it. ( I did tell him to consult his accountant before doing anything.)



So if he sells it for €1m, he will pay €100k

If he sells it for €2m , he will pay €433k.

Is that right?

Are there any traps? It's just an ordinary service business.

What if two people own a company 50/50, work in it full time, and sell it for €2m?

Do they each get 10% on €1m?

Brendan
 
Brendan,

To the best of my knowledge there are a number of criteria that need to be met for the €750,000 exemption.
Unless things have changes since 2015 the 2 main qualifying criteria are- A. your friend must be over 55 (note that if they are over 65 the limit is reduced to €500,000) and B. they must have been working with the company for a minimum of 10 years, 5 of which as a full time working director.

We changed from a partnership to a Ltd company where the company bought the goodwill off the partnership for €1,000,000.

There was 2 directors.

1. 60% shareholder, over 55 and under 65 working for 20 years. Qualified for €600,000
2. 40% shareholder, under 55 working for 20 years. Did not qualify for exemption as too young. Had to pay CGT on €400,000.

We were looking to change company status anyway so the tax allowance for director A was a bonus.
 
Brendan,

Calculations on Entrepreneur relief are correct. There are a few conditions to satisfy - one is that they must work in the business in a "managerial or technical capacity".
 
The section for Entrepreneurial Relief is S.597AA TCA as amended for FA2016. E-Brief 83/2016 is a very good resource. Be careful on the finer details. Simply saying a wife was a manager won't suffice. The detail is very specific and the business assets must be owned for 3 continuous periods of the past 5. "The qualifying business assets must have been owned by that individual for a continuous period of 3 years in the 5 years immediately prior to the disposal of those assets."
 
I started a dental practice from scratch in 2006. In 2014 we incorporated and my husband owns 50% of the shares, he is working fulltime, although spends a lot of time on the business without being paid for it, approximately 20hours a week.
We are looking to sell the business, but we are wondering would we be able to avail of the Entrepreneurial Relief given than my husband owns 50% of the shares?
If his shares are disposed of and not applicable to the relief, would an option be to sell them back to me and delay on selling the business, in order to avail of the relief at a later date?
If so how long would I need to hold 100% of the shares?
 
annette1 said:
I started a dental practice from scratch in 2006. In 2014 we incorporated and my husband owns 50% of the shares, he is working fulltime, although spends a lot of time on the business without being paid for it, approximately 20hours a week.
We are looking to sell the business, but we are wondering would we be able to avail of the Entrepreneurial Relief given than my husband owns 50% of the shares?
If his shares are disposed of and not applicable to the relief, would an option be to sell them back to me and delay on selling the business, in order to avail of the relief at a later date?
If so how long would I need to hold 100% of the shares?
Click to expand...

Just wondering if you ever found out the answer to this question.

Thanks
 
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