For many business owners, their business is not just a job – it’s a lifelong passion. So when it comes time to retire, the thought of selling the business can be daunting. But did you know that there are certain tax reliefs available if you sell your business on retirement? Here’s what you need to know about Capital Gains Tax (CGT) reliefs for the sale of a business or farm.
If you’re over 55 and selling your business or farm, you may be eligible for CGT relief
If you are over 55 and running a business or own a farm, taking advantage of capital gains tax (CGT) relief can help make the transition to retirement much smoother. CGT relief enables individuals to potentially saving thousands of euros and up to €750,000 lifetime limit. This important exemption was designed to ensure that those who have worked hard over the years, often in demanding roles, have something extra to cushion them into retirement. There’s no need to miss out on this opportunity when planning for retirement so make sure you get informed and check the rules.
What is Retirement Relief?
There are two types of Retirement Relief, depending on whether you dispose of your business or farm to a family member or someone outside your family. The definition of ‘child’ for the purposes of this relief is fairly broad and includes not only biological children but also stepchildren, adopted children, nieces and nephews who have worked full time in the business or farm for at least five years, and foster children whom you have maintained for at least five years before they reach 18 years old (this must be supported by testimony from more than one witness). Additionally, if you are disposing to a child of a deceased child then that too qualifies as a ‘child’ under this relief. This retirement relief can help to ensure that the hard work you have put into your business or farm carries on to future generations. It can also provide financial stability and security during your retirement years, allowing you to enjoy the fruits of your labour in peace.
This relief can help you reduce your tax bill when selling your business or farm
Selling a business or farm can be an emotional event, and taxes can add an unwelcome layer of complexity to the whole thing. Fortunately, there may be relief available to you that can help reduce the tax bill associated with the sale. This could be a significant boost for business or farm owners looking for heavy reductions in their taxation burden when the time comes for them to move on from the enterprise they’ve operated for so long. Consulting your accountant will help you determine what types of relief may be applicable in your situation and provide some welcome financial assistance when you decide it’s time to part with your business or farm.
Disposal of a business or farm to your child
When it comes to transferring a business or farm, there is much more to consider than simply writing a cheque. Careful consideration must be made regarding the taxation implications and ownership structures to ensure the transition is seamless for all involved. Ensuring an appropriate disposal plan is not only beneficial financially, but will also provide peace of mind knowing all potential risks have been carefully considered and managed. We recommend consulting an experienced accountant who can assist with crafting an effective plan, allowing you to focus on imparting important knowledge about your business or farm to your child.
When it comes to claiming relief on disposals made, the amount you can claim depends largely on your age at the time of disposal. If you disposed of an asset prior to 31 December 2013, then you may be entitled to full relief so long as you were 55 years old or over.
For disposals made from 1 January 2014 onwards, those who are between 55 and 65 may still be entitled to the full relief, while those 66 or older will have the relief restricted to €3 million. This restriction is part of a government initiative which aims to encourage individuals to invest in their future by making sure that assets are distributed responsibly and that older members of society are not left with unmanageable financial burdens.
When it comes to taxation regulations, these rules usually vary depending on your particular circumstances, including your age. The relief you can receive may also depend on whether the disposal was voluntary or compulsory and whether it was a one-off transaction or part of a series of related disposals. It is therefore important that anyone looking to claim relief familiarises themselves with the taxation regulation relevant to their situation before making any decisions regarding their assets.
Furthermore, it is worth noting that certain types of assets may be exempt from this particular form of relief altogether such as motor vehicles and works of art. In addition, if you dispose off any property after having lived in it as your main residence for three years or more in the four year period prior to disposal then special tax treatment might apply instead. As with all taxation matters, there are many intricate details involved and professional advice should always be sought when considering any kind of asset disposal plan.
Disposal of a business or farm to someone outside of family
Disposal of a business or farm to someone outside of the family can be a complex process, involving many considerations that need to be taken into account. As an accountant, I always advise my clients to carefully review their options in such matters, evaluating the costs and benefits of each option available. It is crucial to ensure not only everything is managed correctly now but also in years ahead – as such, getting impartial and solid advice from an experienced accountant can make all the difference when disposing of a business or farm.
When it comes to claiming full relief on disposals of assets, there are certain thresholds which must be observed. For disposals made between 1 January 2007 and 1 January 2014, the threshold is €750,000. If the disposal was made on or after 1 January 2014, then a person under 66 years old must not exceed the €750,000 threshold, while those over 66 can claim full relief up to €500,000.
In cases where the market value of an asset lies above the threshold stated above, marginal relief may apply. This limits capital gains tax (CGT) to only half the difference between the market value and the threshold amount. It should be noted however that these thresholds are lifetime limits only; if exceeded clawback will occur and CGT will be payable on all disposals once more.
The application of marginal relief may help taxpayers who have exceeded their threshold limit to reduce their CGT liability. In such cases revenue considers several factors such as the sale price or market value of the asset in question as well as any additional costs incurred by the taxpayer in relation to its purchase or sale. Therefore, when assessing whether marginal relief is applicable it is best for taxpayers to consider all relevant factors in order to determine how much CGT they must pay on their disposal profits before any applicable deductions take place.
It is important for taxpayers to understand exactly how much CGT they have to pay when disposing of assets given that this could have a substantial effect on their financial situation. Therefore it is recommended that they consult with either a qualified accountant or financial advisor in order to ensure that they do not fall foul of these thresholds and incur unnecessary costs when selling off an asset.
