Capital Gains Tax Entrepreneur Relief

Capital Gains Tax relief for entrepreneur’s – known as Entrepreneur Relief was originally introduced by Section 45 of Finance (No 2) Act 2013. Finance Act 2015 contains amendments to the original relief to extend and simplify it.

However it is important to note that the 2013 version of entrepreneur’s relief has not been abolished. Finance Act 2015 provides that if the CGT payable available under the new entrepreneur’s relief would be higher than if the earlier version of entrepreneur’s relief was claimed, the earlier version can be claimed.

The 2015 Act specifies that gains on disposals of “chargeable business assets” made by individuals on or after 1 January 2016 are liable to a reduced rate of 20% capital gains tax, up to an overall lifetime limit of €1m of these chargeable gains. The standard rate of CGT (currently 33%) applies to gains made in excess of the lifetime limit.

A “chargeable business asset” is defined as -

• A holding of not less than 5% of the ordinary shares in the qualifying business (or in a holding company of a qualifying group);
• The asset must be held by an individual who is director or employee of the qualifying company (or companies in a qualifying group) in a managerial or technical capacity;
• The individual must be required to spend not less than 50% of their working time in the service of the qualifying company; and
• The individual must have served in that capacity for a continuous period of 3 years in the 5 years immediately prior to the disposal.

To qualify for the reduced rate of 20% the shareholder must have owned the “chargeable business assets” for a minimum period of 3 years prior to disposal.

A qualifying business is widely defined to include all activities apart from (i) holding assets as investments, (ii) holding development land or (iii) the development or letting of land. The relief also applies to a holding company of a qualifying group – that is a holding company of a 51% subsidiary, where the activity of the 51% subsidiary consists wholly or mainly of the carrying on of a qualifying business.

Where there has been a qualifying share-for-share exchange and / or share-for-undertaking exchange involving the company/group, the Act allows an individual take account of their combined ownership and working periods in the old and new companies in meeting the qualifying conditions for relief. 

Contact your OSK Tax advisor or call 01 439 4200 for more advice on Capital Gains Tax Entrepreneur Relief.