CGT Relief for Entrepreneurs

A new CGT incentive is being introduced to encourage entrepreneurs (in particular “serial” entrepreneurs) to invest and re-invest in assets used in new productive trading activities. This particular relief which is designed to encourage investment by “serial entrepreneurs”, will work by offering relief to individuals who have recently paid CGT and subsequently invest in a new business, before selling that new interest no earlier than three years after the investment date. Ultimately, it is hoped that this incentive will lead to an increase in entrepreneurism and as a result a related increase in job creation.

The measure will apply where an individual, who has paid capital gains tax on the disposal of assets, makes investments in a new business in the period 1 January 2014 to 31 December 2018 and subsequently disposes of this investment no earlier than three years after the date of investment. The CGT payable on the disposal of this new investment will be reduced by the lower of (i) the CGT paid by the individual on a previous disposal of assets in the period from 1 January 2010 and (ii) 50% of the CGT due on the disposal of the new investment. As the Capital Gains Tax rate currently stands at 33%, the relief available may be quiet substantial in certain cases.

To qualify for the proposed relief, the reinvestment must take place within the period 1 January 2014 to 31 December 2018, the chargeable business assets must be held for at least three years and a minimum reinvestment of €10,000 is required. A further reinvestment of the proceeds from any disposal of chargeable business assets in a further new business within the period 1 January 2014 to 31 December 2018 will also qualify for relief.

This relief will apply to the sale of assets used wholly for the purpose of a new business carried out by the individual. This would include Goodwill. The sale of shares in a qualifying company will also qualify for the relief, provided the individual selling the shares was a full time working director carrying on a new business. A full-time working director, in this regard, means a director required to devote substantially the whole of his or her time to the service of the company in a managerial or technical capacity. A result of this the relief will not be available to individuals who simply invest in a business like, for example, business angels.

It is important to note that the commencement of this measure is subject to receipt of EU State Aid approval.

If you wish to discuss entrepreneurial relief further, please do not hesitate to contact RDA Accountants’ Tax manager George Skelton CTA, ACA, at our Wexford office for further assistance.