Reduce Your Tax Bill When Exiting Your Business

When exiting your business, it’s critical to get specialist tax advice. A tax advisor will examine the circumstances relating to your specific situation. They can also help you to make maximum use of any reliefs and tax saving opportunities that are available to you.

There are two tax reliefs that you will frequently hear about when exiting a business. One or other of these can significantly reduce your Capital Gains Tax (CGT) liability.

Entrepreneur Relief

This relief reduces the CGT rate from 33% to 10% on gains from the disposal of qualifying business assets. There is a lifetime limit of €1 million on the gains that you can claim relief on, which results in a potential tax saving of up to €230,000 per individual.

It is important to note that you must have owned the business assets for a continuous period of three years, and these must be in the five years immediately prior to the disposal. The business asset must be used for a qualifying business and in the case of shares, you must have owned at least 5% of the ordinary shares for a continuous period of three years.

A tax adviser will help you to identify whether you meet the terms and conditions to qualify for this valuable relief. The time to start investigating this is a minimum of five years in advance of any sale.

Retirement Relief

The first important point to make about Retirement Relief is that you do not need to actually retire from the business (or farm) that you are selling, in order to qualify for the relief. It is also important to note that it is a ‘per individual’ relief, so a husband and wife who each own business assets or shares in a family business can each qualify for this valuable CGT relief.

The amount of relief you can claim depends on who you are disposing of your business or farm to, and your age at the time of disposal.

If disposing to a child, and you are aged between 55 and 65, you can claim full Retirement Relief. Again if disposing to a child, but you’re aged 66 or older, the relief is restricted to €3 million.

If the disposal is to someone outside of your family, you can claim full relief when the market value at the time of disposal does not exceed the threshold of:

• €750,000 if you are under 66
• €500,000 if 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.

These reliefs will help you maximise the value from a business sale, if available to you. They are extremely valuable and well worth the effort and fees of receiving specialist tax advice.