Entrepreneur Relief relates to a reduced rate of Capital Gains tax you pay on the sale of your business or the shares in your business. It is also available for companies who cease trading and liquidate their Limited company
Below, we will go through all you need to know about Entrepreneur Relief & how to avail of it including frequently asked questions and an example scenario.
Capital Gains Tax
Capital Gains Tax (or CGT) is a tax on the profits you make on the sale of Assets, including Property and Shares.
The prevailing rate of CGT is 33% but when you avail of Entrepreneur Relief, the rate is reduced to 10%
What are the conditions of Entrepreneur Relief
- The value of the gain on sale must be less than €1,000,000 otherwise marginal relief applies
- You must own more than 5% of the company shares
- You must have owned the shares for a continuous period of 3 out of previous 5 years
- You must be a director or employee of the company for a continuous period of 3 out of previous 5 years and have spent more than 50% of your time working in the company.
- Entrepreneur Relief can be claimed whilst liquidating your limited company
- The organization in question must be a qualifying trading company
- Non trading assets, investments and securities are not allowed to be taking into account when calculating
Entrepreneur Relief FAQs
We've answered some frequently asked questions relating to Entrepreneur Relief, see them below:
Can a Contractor working through their own Private limited company avail of this reduced rate of CGT?
Yes, Contractors would be classed as having a relevant trading company
Can I liquidate my Company and avail of the 10% rate?
Yes, it is possible to avail of this on any funds that you have left in the Company
How does a liquidation work?
You need to appoint a liquidator who will wind up your company and organize the legal aspects of this and distribute funds to the Shareholders. The cost is approximately €2500 - €3000 + VAT! This can be written off as a business expense.
Does it work for all contractors?
No, it Is only tax efficient for those who have built up excess funds in the company
I am in an Umbrella company can i claim this?
No, you need to have your own Personal Ltd company, however we can arrange this for you!
Do I still have to pay Corporation tax?
Yes, you still have to pay Corporation Tax on your company profits
Can i close down my company and continue contracting?
No, it must be shown the trade of the company has genuinely ceased otherwise Revenue may challenge the bona-fida of the claim
How much tax will I save?
Personal Marginal Tax rate 52%
Corporation tax 19% (12.5% + 6.5%) + 10% CGT
Could I see an example of how this works?
Yes, please see the scenario below:
Below we do a comparison on a Contractor over 5 years with below variables:
- Day rate of €400 per day @ 231 days per annum
- Takes set Gross Salary of €50,000 per annum
- Company expenses €7,000 per annum
- Retained Profit in Company is €35,400 per annum
Based on the calculations below, you will see that based on leaving a profit of €35,400 per annum in your company or €177,000 over 5 years the effective rate of tax is 27% taking into account the liquidation fee and relevant taxes
If you paid Income tax on the same €35,400 per annum or €177,000 over 5 years then you would pay €88,783.
Your tax savings would come in at €43010
If you have any questions on Entrepreneur Relief or would like to get a personalised example dont hesitate to contact our Advisory team or your account manager and they can arrange a consultation with one of our Accountants. We can then personalise a computation for you.
Email firstname.lastname@example.org or call the Icon Accounting Advisory Team on 01 8077106