Entrepreneur Relief
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
Capital Gains Tax
This is a tax on the profits you make on the sale of Assets, including Property and Shares.
The prevailing rate of CGT is 33%
When you avail of Entrepreneur Relief the rate is reduced to 10%
Features 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
- Qualifying trading company
- Non trading assets, investments and securities are not allowed to be taking into account when calculating?
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
Do I still have to pay Corporation tax?
Yes you still have to pay Corporation Tax on your company profits
How much tax will I save?
Personal Marginal Tax rate 52%
V’s
Corporation tax 19% (12.5% + 6.5%) + 10% CGT
Could I see an example of how this works?
Yes please see a scenario below.
Scenario
Below we do a comparison on a Contractor over 5 years who:
Day rate of €400 per day @ 231 days per annum
Takes set 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 €35,400 per annum or €177,000 over 5 years the effective rate of tax is 27%, meaning you pay €45,773 in tax.
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
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