entrepreneurs retirement - doyle keaney · entrepreneurs retirement & dwelling house relief...

Entrepreneurs Retirement & Dwelling House Relief

26th September 2017

Paula Keaney

www.doylekeaney.ie 1

Content

▪ Entrepreneurs Relief – revised and original

▪ Retirement Relief

▪ Comparisons of Both

▪ Dwelling House Relief pre and post Dec 2016

2

Doyle Keaney Tax Advisors

3

Revised Entrepreneurs Relief – S597AA TCA1997


Entrepreneurs Relief - Section 597AA Revised

• Inserted by Finance Act 2015• Revised relief for entrepreneurs – initial entrepreneurs relief

provided by Section 597A• S597AA applies to disposals of chargeable business assets on

or after 1 January 2016• 20% tax rate on qualifying disposals between 1 January 2016

and 31 December 2016 • 10% tax rate on qualifying disposals after 1 January 2017

4



• Current life time Limit of €1 million

• The life time limit takes into account all qualifying disposals on

or after 1 January 2016

5



• Applies to disposals of Chargeable Business Assets (“CBA”) by a Relevant Individual

Number of important definitions

1. Relevant Individual – an individual who is, or has been, the beneficial owner of CBA for a continuous period of not less than 3 years in the 5 years immediately, prior to the disposal

6



• Periods of ownership by spouses cannot be aggregated for the purposes of the 3 yr period

• Where sole trade / partnership has been incorporated – the period prior to incorporation cannot be included

7



2. Chargeable Business Assets

a) an asset (or an interest in an asset), including goodwill, which is used for the purposes of a qualifying business carried on by an individual, or

b) a holding of ordinary shares in company whose business consists wholly or mainly of carrying on a qualifying business or a holding company of a qualifying group,

8



• In respect of which an individual

i. owns not less than 5% of the ordinary share capital , and

ii. is a qualifying person in respect of the company, or if the company is a member of a qualifying group, of one or more companies which are members of the qualifying group.

9



3. Qualifying group – a group will be considered a ‘qualifying group’ where the business of each 51% subsidiary (other than a holding company) consists wholly or mainly of the carrying on of a qualifying business

4. Holding Company – business consists wholly or mainly of the holding of shares of all companies which are its 51% subsidiaries

10



5. Qualifying business – a business which is not involved in the

carrying on of:

• Holding of securities or other assets as investments

• Holding of development land

• Development or letting of land

11



6. Qualifying Person - an individual who is or has been a

director or employee of a company ( or company in the

qualifying group) who

• Is / was required to spend not less that 50% of their

working time in the service of that company in a

managerial or technical capacity, and

• Has served in that capacity for a continuous period of 3

years in the 5 year period immediately before the disposal

12



7. Working Time – any time the employee is

• At their place of work or, at the employers disposal and

• Carrying on/ performing the activities of their work.

13



8. CBA does not include

• Shares, securities or other assets held as investments

• Development land or

• Assets on the disposal of which no gains accruing would

not be chargeable gains e.g. asset acquired between

7/12/11 and 31/12/14 and held for 7 years or inter

spousal transfers

• Asset held outside of company even where used by trade14


9. Share for share/ Share for Undertaking Relief

If the shares being disposed of were acquired as part of a share for share or share for undertaking reorganisation and treated as being the same shares as an earlier company under s586 or s587 TCA 1997, the period during which the individual was an employee or director of the previous company is taken into account when determining whether they are an employee or director of the company in which share are subsequently disposed.

15



• In addition the period of ownership of the previous shares will also be taken into account for the purpose of the 3-year ownership requirement

10. The original entrepreneurs relief (s597A ) continues to apply where greater relief would be available under that section.

16



Revenue Guidance – May 2017

• Subject to the conditions being satisfied relief can apply in the following situations :

• Share Buy Back where the buy back is within the charge to CGT

• Double Holding Company structures

• Partnership assets where the individual is actively involved in the business

17



• Company liquidations – revenue concession

• but limited to the liquidation of the trading company provided it was trading up to the time of the appointment of the liquidator and

• The liquidation is completed within a reasonable period of time – i.e. 2 years

• Does not extend to liquidation of holding company – not carrying on a qualifying business

18



• Do the shares in the holding company qualify for ER?

19


Holding Company

Trade Co(100% Trading Company)

Holds Property which is used for the trade of

Trade Co

No. Its not a qualifying group– it’s subsidiaries are not wholly or mainly carrying on a qualifying business


• Do the shares in the holding company qualify for ER?

20

Holding Company


Dormant company

No. Its not a qualifying group as defined – all of it’s subsidiaries are not wholly or mainly carrying on a qualifying business i.e. the dormant company disqualifies it. Liquidate dormant company before sale of shares in Holding company


1. Do the shares in the holding company qualify for ER?

2. Does the sale of the property used for the business qualify for ER?

21

Holding Company


Property held personally and used for the trade of

Trade Co

1. Yes – all of it’s subsidiaries are wholly trading2. No. the property is not being used to carry on a qualifying business of the owner


Do the shares in the holding company qualify for ER?

22


Holding Company


No. Its not a holding company as defined – it must have at least a 51% interest in all of it’s subsidiaries


• Shares in the Trading company are sold.

• Hold co qualifies for participation Relief

• The liquidation of Holding company does not qualify for ER - no longer a qualifying Holding company

• CGT of €330k arises on the liquidation

• Option - look to sell the shares in the Holding company and not the Trading Company

• CGT on sale of HoldCo is €100k. Saving is €230k

23


Holding Company


Sold for €1m 100% holding


• Might not be able to sell the holding company as other subsidiary companies are not part of the deal

• Restructure prior to sale – transfer shares in target trading co to new holding co and sell shares in new holding company

• Additional benefit of cash in individuals hands as opposed to trapped in company

24



25

Holding Company Holding CompanyHolding Company

100% subs



Do the shares in the holding company and Trade co qualify for ER?

26


Holding Company


Yes in both cases.

51%

Tom

49%

100%

Entrepreneurs Relief Compared to UK

27

Ireland UK

Ownership/ working period 3 years 1 year

% shareholding 5% 5%

Relief on trading assets held outside of company

No Yes

Lifetime limit €1m €10m

Qualifying person Individuals only Individuals and certain trusts

Relief on cessation In certain circumstances Yes – up to 3 years after trade ceases

Share buy back Yes – but not statutory Yes

Serial investor No Yes

Original Entrepreneurs Relief – S597A TCA1997

28



• The relief shall apply where an individual

• made a disposal on or after 1 January 2010 where CGT has been paid and

• on or after 1 January 2014 but before 31 December 2018, applies all or part of the sales consideration (less cgt paid) as an initial risk finance investment in acquiring Chargeable Business Assets (“CBA”) , provided they are held for at least 3 years.

29


• They shall be entitled to a cgt tax credit against the subsequent disposal of the CBA equal to the lower of

a) the cgt paid on the initial disposal post 1/1/2010, ( or the proportionate of the cgt relative to the amount applied to the risk finance investment ) and

b) 50% of the cgt payable on the CBA i.e. on the second disposal

30



A disposes of assets in 2010 for €250,000 – cgt paid was €50,000

• In 2014 A invests €200,000 ( the full consideration received less the cgt )in CBA

• In 2017 A disposes of the CBA making a gain of €500,000.

But for the relief the cgt would be 33% of €500k = €165k

The relief provides that A is entitled to a cgt tax credit of the lower of :

a) the cgt paid on the 2010 disposal i.e. €50,000 and

b) 50% of the cgt payable on the 2017 disposal i.e. €82,500

tax credit is €50,000. Tax due on 2017 disposal is €105,000. 31


• Where less that the full amount is reinvested only the proportion of the CGT relative to the amount reinvested will qualify

A disposes of assets in 2010 for €250,000 – cgt paid was €50,000

In 2014 A invests €150,000 ( the full consideration received less the cgt)in CBA

In 2017 A disposes of the CBA making a gain of €500,000.

But for the relief the cgt would be 33% of €500k = €165k

32



• The relief provides that A is entitled to a cgt tax credit of the lower of :

a) the proportionate cgt paid on the 2010 disposal i.e. €50,000 * 150/200 = €37.5k and

a) 50% of the cgt payable on the 2017 disposal i.e. €82,500

• In this instance the cgt tax credit is €37,500. Tax due on 2015 disposal is €127,500.

33



• Chargeable Business Assets (“CBA”)

Is an asset, including goodwill, but not including shares (other than shares mentioned in (b) below), securities or other assets held an investments, where that asset is acquired at a cost of not less than €10,000 on or after 1 January 2014 but before 31 December 2018 and which –

a) Is, or is an interest in, an asset used wholly for the purposes o a new business carried on by a qualifying enterprise,

or

34



b) In a holding of new ordinary shares, issued on or after 1 January 2014

i. In a qualifying company carrying on a new business, or

ii. In a holding company which owns 100% of the ordinary share capital

of a qualifying company carrying on a new business

iii. Owns not less than 15% of the OSC pf the qualifying company or the

holding company, and

iv. Is a full time working director of the qualifying company

• Other than an asset on the disposal of which no gain accruing would be a

chargeable gain

35



• Holding Company – a company that is not listed on any Stock Exchange whose business consists wholly of holding shares in a qualifying company

• Qualifying Enterprise – is an enterprise which at the time of making the initial risk finance is a micro, small or medium-sized enterprise (SME) as defined in Article 2 of the Annex to the Commission Recommendation 2003/361/EC which has not been carrying on any business, trade profession or has been carrying on such activity for less that 7 years

36



• Qualifying Company – is a company that is a qualifying enterprise and which, at the time of the initial risk finance investment, is not listed on any Stock Exchange.

• Initial Risk Finance – (Defined in the GBER)

• Must not exceed €15m

• is provided in full within 6 months of the commencement of the new business and

• Includes equity or investments or both

37



• The original ER does not apply in respect of disposals post 1 January 2016 except

a. The disposal would qualify for relief under both the original and revised ER and

b. Where relief under the revised ER (S597AA) is less than that which would have been available under the original ER.

38


Interaction of S597AA And S597A

Example

A makes a chargeable gain in 2011 for €1,000,000 – cgt paid was €330,000. In 2014 A invests €670,000 ( the full consideration received less the cgt )in CBA. In 2017 A disposes of the CBA making a gain of €2,000,000.

The disposal qualifies as a disposal of CBA for both S597AA and S597A

• S597 AA(5) provides that where relief under S597A results in a greater tax saving then relief under S597A shall apply.

39


Need to work out relief under both sections

• S597A Relief - The relief provides that A is entitled to a cgt tax credit of the lower of :

a) the cgt paid on the 2011 disposal i.e. €330,000 and

b) 50% of the cgt payable on the 2017 disposal is ( ignoring S597AA) i.e. €660,000 is €330,000

Total tax is €330,000 (i.e. €660,000 less lower of above, €330,000)

40



• S597AA relief : a) 1st €1,000,000 * 10% = €100,000

• b) Balance * 33% = €330,000

Total tax €430,000

• In this instance the relief under S597A is better by €100k so S597A shall override S597AA.

41


Retirement Relief – S598 and S599 TCA1997

42


Retirement Relief

• S598/ S599 TCA 97

• Child – includes • nephew or niece who worked on a full time basis for the 5 yrs ending with the

disposal and• Child of a deceased child• An individual who resided with and was maintained by the disponer for 5 years

before they reached 18 yrs• A child of the individuals civil partner• A child of a deceased child of the individuals civil partner• A child of the civil partner of a deceased child of the individual• A child of the civil partner of a deceased child of civil partner of the individual

• do not have to retire to avail of the relief43

Retirement Relief

• lifetime limit:

o if 55 > 66 - €750,000 if disposal to a third party

o if 66 or over - €500,000 if disposal to a third party

o if 55 > 66 - none if disposal to a child

o if 66 or over - €3 million if disposal to a child

• disposals of all qualifying assets taken into account includes transfers between spouses

• Clawback if child disposes of within 6 years – cgt that would have been paid.

• marginal relief also available44


Retirement Relief – disposals to child

• The aggregated of €3 million applies to disposals on or after 1 January 2014

• Where the QA is land used for farming and the consideration for it is land then • No gain shall accrue on the child

• RR available for disponer/parent

• The disponer/parent shall be deemed to have acquired it for the same cost and DOA as the child an deemed to have used it for the same purposes as that used by the child.

45


Retirement Relief – Qualifying Assets

• chargeable business assets (assets, including goodwill but not shares or assets held as investments), owned by the individual for at least ten years and which were his chargeable business assets for that ten year period

• Shares held for at least 10 yrs ending with the disposal, in a relevant company and in which the individual was a a working director for at least ten years immediately prior to disposal and a full time working director for at least five of those years• A relevant company is

• a trading co. or a farming co and the individuals family company

or• a company which has been a member of a trading group of which the holding company is

the individuals family company. 46


• land and machinery or plant owned by an individual for at

least ten years ending with the disposal and used throughout

that 10 yrs by the relevant company

• payment entitlements where they are disposed of at the same

time and to the same person acquiring the land

47



• land leased or disposed of under the Scheme of Early Retirement from Farming and which has been owned and used for the purposes of farming carried on by the individual for a period of not less than ten years prior to the lease

• land which was let at any time within the five years prior to a compulsory purchase order, where immediately before the first letting the land was owned and used for the purposes of farming carried on by the individual for a period of not less than ten years

48



• land which was let at any time within the previous 25 years, where immediately before the first letting (within that 25 yr period) the land was owned and used for the purposes of farming carried on by the individual for a period of not less than ten years and the disposal:

➢ is to a child OR

➢ Is to a person other than a child where the disposal is on or before 31/12/16 OR

➢ Is to a person other than a child, and the land was let for the purposes of farming with each letting for a period of not less than five consecutive years, but not necessarily to the same individual 49

Retirement relief - definitions

• “full time working director” must devote substantially the

whole of their time to service of the company in a

managerial or technical capacity

• The period immediately before the death of a spouse

throughout which they were a full time working director will

be deemed a period of full time working director of the

individual

• Complimentary business – not group companies

50


• Holding Company – wholly or mainly of the holding of 75%

subsidiaries

• Family Company means a company in which the voting rights

are:

o not less than 25%, exercised by the individual, or

o not less than 75%, exercisable by the individual or a member of

his or her family where not less than 10%, exercisable by the

individual himself or herself

51


RR – Qualifying Periods / Ownership Periods

• qualifying assets generally required to be held and used for at least ten years.o period of ownership of spouse taken into account

o period of ownership of a business which was incorporated and availed of incorporation relief taken into account –S600

o Deemed period of use – on death of spouse

o Roll over relief -S597 – deemed ownership of new assets

o directorships of a company which was restructured and on which the relevant CGT reliefs were claimed can be taken into account

o Death – full time working director throughout

52

RR – Qualifying Periods / Ownership Periods

• By concession where a trade is transferred from holding company to a subsidiary in the 10 yrs prior to sale relief is allowed where all other conditions satisfied.

• Where lease expires and new lease entered into – periods of ownership may be aggregated

53


Retirement Relief – Liquidation

• treated as a disposal of shares in the company and therefore may avail of the relief

• does NOT apply to the distribution of chargeable business assets to the shareholder by the liquidator

• where chargeable business assets are disposed of up to six months prior to the appointment of the liquidator, then the proceeds may be included in the value of the companies chargeable business assets for the purposes of calculating the relief available

54


• Relief is restricted to gains on qualifying assets

• Only the portion of the consideration that relates to the CBA

is relieved

• Sale of shares: 2 Steps

• Step 1 – determine portion of sale proceeds qualifying for relief to

ascertain if threshold has been exceeded

• Step 2 – determine proportion of gain relieved

55


Sale of shares

Company assets:

Premises 800,000

P&M 100,000

Debtors 100,000

Cash 200,000

Investments 100,000

Creditors (500,000)

56

Sale proceeds 800,000

Assumed gain 600,000


Sale of shares

Step 1 - % of Consideration

(CBA/ CA) * Total consideration

(900/1,000) * 800 = 720k

Threshold has not been exceeded

57

Step 2 - % of gain Relieved

(step 1 / total consideration)* Total

gain

(720/800) * 600 = 540k relieved

€60k taxable


Liquidation of company

• Liquidator Liable for company CGT

• No relief where distribution consists wholly of CBA

• Partly CBA / cash

• The relief is restricted to that portion of the gain which the

distribution, excluding CBA distributed in specie, bears to the total

capital distribution

58



• 4 Steps

1) Cal the the amt of distribution/ consideration excl the CBA

distributed in specie (DIS)

2) Cal the % of the consideration qualifying for relief to ascertain if the

750k/500k threshold has been exceeded – Ans in step 1 * (CBA/CA)

3) If not then cal the % of the gain qualifying –

Total gain * (consideration excl DIS/ total consideration)

4) Finally cal the amount of the qualifying gain relieved -

Ans in Step 3 *( CBA/CA)

OR (Ans in Step 2/ Total consideration)* total gain59

Company Assets prior to Liquidation

Company assets:

Premises (1) 500,000

Premises (2) 300,000*

Cash 200,000

Investments 100,000

Total Value 1,100,000

*assume no latent gain

60

Distribution by Liquidator - €1.1m

- Comprised cash 600k & prop 500k

Assumed gain on liquidation €700k

• May think that RR does not apply

as proceeds XS €750k

CBA 800,000

CA 900,000


• Step 1 - Strip out the non qualifying

asset from the proceeds – i.e. the

premises that was distributed in

specie = €1.1m less 500k = €600k

• Step 2 = % of consideration qualifying

for relief

• 600k * CBA/CB

• 600K * (800/900) = €533,340

Threshold not exceeded so RR available

61

• Step 3 - % of Gain qualifying

• Total gain - €700k

• 700*(600/1100) = €381,850

• Step 4 - answer in step 3 * CBA/CA

= 381,850*(800/900) = €339,426

• €339,426 qualifies for RR

• €360,574 liable to CGT at 33%

Alt Step 4 – (answer in step 2/ total

consideration) * total gain i.e.

(533,340/1,100,000)* 700k = 339,430

Liquidation/ Disposal

• If no CBA at the time of liquidation (6 mts prior) then none of

the proceeds qualify for relief

• Context where relief previously claimed and now potentially

clawed back

• Monitor CBA

• Make a distribution in specie

• Look at managing clawback

62


Clawback of Relief

• Aggregate disposal proceeds on all qualifying disposals

• If individual had the benefit of relief on prior disposal the tax

relieved will be clawed back.

• Consider the availability of marginal relief in those

circumstances

63


Retirement relief – other considerations

• Aggregate of consideration includes disposals generating a

loss

• May be qualifying assets of more than one trade/ company

• Disposals post 31/ 1/ 2008 – S598 Bona Fide test to be

satisfied

• Annual exemption of €1,270 not allowed in the year RR

claimed

• Company Buy backs/ Capital Distributions

• illness – concession if 54 & chronic ill health 64

Retirement relief – other considerations

• If selling shares in family company and property held outside

of company & threshold exceeded – consideration selling at

different times.

• Revenue precedent: no claw back on child where disposed of

in a S584 reorganisation

• In looking at the €3 million cap on disposals to child relief is

given as if the asset had been disposed for €3m

65


Retirement relief – To child

Example

Tom (67) acquired farm for 2m and disposed to son when valued

at 5m.

Normal cgt calculation –

MV 5,000,000

Base cost 2,000,000

Gain 3,000,000

CGT @ 33% 1,000,00066


Retirement relief – To child

Retirement relief cal:

Deemed consideration 3,000,000

Base cost 2,000,000

Deemed Gain 1,000,000

CGT @ 33% 333,333

The CGT relieved is €333,333 leaving a liability of €666,666 i.e.

the excess over 3m taxed @ 33%.

Base cost erodes the benefit of the RR 67


Retirement relief – Partnership Asset

• Partnership is look through for cgt

• Relief given by reference to share in the total chargeable

assets of the p/ship to which the individual was entitled to

throughout the 10 year period – capital sharing ratios

• Profit sharing ratios are ignored

68



• Tom held a 1/3 interest in a partnership since 2005

• In 2010 he acquired a further 1/6th on the death of one of the

3 equal partners.

• Since then he held 50%

• He disposals of his entire interest in 2017

• As he did not hold all of his interest for 10 years only the

interest held since 2005 (i.e. 2/3rds) will qualify for relief

69



• Trading assets let to a p/ship is an investment asset and thus is

excluded from relief

• However where the disposal of the asset is associated with the

disposal of the p/ship interest and all other conditions are

satisfied then:

• If no rent was charged to the p/ship the asset may be regarded as a

CBA

• If rent not less than market rent was charged a % of the asset will

qualify = to the % of the partners shares in p/ship profit

• If rent is less than marker rent then that % will be greater 70

Comparison of Entrepreneurs Relief and Retirement Relief

71


72

Entrepreneurs Relief (S597AA) Retirement Relief

Application of the relief Relief from chargeable gains Relief from CGT that applies to chargeable gains

Rate of tax • 20% on disposals ( incl gifts) of CBA made between 1/1/16 and 31/12/16 up to an aggregate limit of €1 million.

• 10% on disposals on or after 1 January 2017 up to an aggregate limit of €1 million.

• 33% on excess

• Full relief where disponer is aged 55 >66 & disposal proceeds do not exceed €750k. No cap in respect of a gift to a ‘child’.

• Full relief where disponer is aged 66 or more and disposal proceeds do not exceed €500 . In respect of a gift to a child –full relief where value of asset does not exceed €3 million. No relief on excess

Age requirement No age requirement Must be 55 or over

73

Entrepreneurs Relief (S597AA)

Retirement Relief

Minimum interest held in company 5% of the issued ordinary share capital

• 25% of the voting rights or • 10% of the voting rights

exercisable by the individual where not less that 75% is exercisable by the individual together with their civil partner, member of their family or member of civil partners family.

Holding period 3 year minimum holding period 10 year holding period

Transfers between spouses No period of ownership of spouse taken into account

Spouses period of ownership is deemed to be a period of ownership of the disponer

74


Pre incorporation per No pre- incorporation period included Where s600 relief claimed then pre-incorporation period included in the 10 yr ownership and full time working director

Company working time Spend at least 50% of working time in a managerial or technical capacity

Must spend substantially the whole of the time in a managerial or technical capacity

Director requirement • No requirement to be a director can be an employee

• Must be an employee or a director for 3 out of the last 5 years immediately prior to disposal

• No period transferred to spouse on death

• Must be a working director for 10 years prior to the disposal and

• Must be a full time working director for 5 out of the last 10 years immediately prior to the disposal

• Period of full time working director transferred to spouse on death

75


Holding company A company whose business consists wholly or mainly of holding of shares of all companies which are its 51% subsidiaries and which are wholly or mainly trading

A holding company of a group of companies consisting of the its 75% subsidiaries the business of the group taken together consist wholly or mainly trading.

Qualifying Assets Does not include assets personally held and used by company

Includes land and P&M owned by the individual for at least 10 yrs ending with the disposal which was used throughout that period for the purposes of the individuals family company (or group) and is disposed of at the same time and to the same person as the shares

Liquidation Rev concession – where company carrying on qualifying trade up to the date liquidator appointed and completed within 2 years

Rev concession if liquidator appointed within 6 months of ceasing to trade

76


Share buy back Relief available where BB is within the charge to CGT

Relief available where BB is within the charge to CGT

Anti avoidance No specific measures in the section Bone fide test where disposal to non ‘child’

clawback No clawback of relief Where life time threshold of €750k is exceed earlier relief given may be clawed back


Maximising The Reliefs

77


Maximising the reliefs

• ER is on the chargeable gain up to €1m

• RR is on the cgt where the sale proceeds/ MV on gift don’t exceed €750/500k

Where both apply RR will erode the benefit of the ER life time limit of €1m

78


Maximising the reliefs

• Objective would be to maximise the life time limit which has a tax saving of €230k whilst at the same time preserving the RR.

• Ultimately an individual might seek to realise value up to €1.75m at a tax cost of €100k (eff rate of 5.7%) as opposed to €347,500 ( eff rate of 19.86%)

79


Example

• A wants to gift 50% of his shares (both qualify for ER & RR) with MV of €2m. He then wants to sell the balance to the management team for €2m.

CGT arising

• Gift – no cgt as a gift to a ‘child’

• sale to the MBO team - assume nil base cost the chargeable gain is €2 million. CGT €660k.

Total Tax on disposal - €660K

80



A gift to child gives rise to a chargeable gain – it is the tax on the chargeable gain that is relieved for RR purposes.

So when the sale to the MBO team occurs A has used up his ER lifetime limit of €1m

• Simply changing the order of disposal can have a significant saving.• Step 1 – sell to MBO team. CGT - €430k (€1m @10% + €1m

@33%)• Step 2 – gift to child. No CGT

Total Tax = €430k

• CGT saving is €230K by virtue of changing the order of disposals 81


• Trigger a disposal that qualifies for ER before you qualify for RR

➢Disposal before 55 doesn’t qualify for RR so client has maximum benefit of the lifetime limit of €1m

➢Disposal before shares/ assets are held more than 10 years doesn’t qualify for RR

➢As part of a restructuring of a company/ group of companies it may be possible to plan for either of the above

82


• Trigger a disposal/ part disposal that qualifies for RR but nor ER so as to preserve lifetime limit

• Disposal of shares in a group that has a dormant company will not qualify for ER but will be RR

• The Lifetime limit is preserved for further gains ( need to be careful to not trigger clawback of RR if same companies)

83



84

Holding Company

Trading

CompanyDormant

Company

Trading

Company

Holding Company

• Shares only qualify for RR


• Watch out for disposals to spouse post aged 55 as this is aggregated for RR purposes in calculating if the €750/500k threshold has been exceeded.

• Consider gift pre 55 yrs of age – not a chargeable disposal so does not erode lifetime limit of €1m.

• Spouse holds onto shares for 3 years and works full time in the company as a director to qualify for ER relief

• Doubling of the life time limits

• Spouse ‘steps in shoes’ of disposer for ownership period for RR so if spouse is already a full time working director then may satisfy conditions for RR provided all other conditions are satisfied

85


Tom own 100% of shares in trading company for 10 years. He is 54. Company worth €1.5m. Mary, his wife is aged 56. If he disposes of the company whilst he is 54 or even after he is 55 he will have a cgt liability of €265k. (assuming ER applies and RR after 55)

86



• However, if Tom gifts 50% to Mary whilst he is 54 and waits 3 years to dispose of the business the tax saving is €190k.

• No tax on the gift – not aggregated for ER as not a chargeable gain and not aggregated for RR as not yet 55

• Sale of Tom’s shares in 3 years qualifies for RR no tax

• Sale of wife’s shares in 3 years qualifies for ER – tax is €75k (10% of €750k)

• If Mary was already a full time working director of the company before she got the shares (assume 10yrs) then her disposal will also qualify for RR. In which case might look to sell before the 3 years is up so as not to qualify for ER.

87

Entrepreneurs Relief and Losses

• Section 31 TCA• CGT – chargeable gains after deducting c/y and c/f capital losses

• Section 546(6) • 2 rates of cgt

• Losses set against chargeable gains at higher rate first

• How can you maximise benefit of losses at higher rate• Timing of disposal

• Defer disposal of loss making assets

• Realise other gains in the same year

• Defer disposal of ER shares

88


Entrepreneurs and Losses

• 2017 – Gain of €1m – qualified for ER

• 2018 – Gain of €1m – didn’t qualify for ER

• Defer selling loss making asset to 2018

2017 –cgt - €100k

2018 – cgt – nil

89


Entrepreneurs and Losses

• No restriction on using losses on shares that would have qualified for ER against gains taxed at 33%

90


Dwelling House Relief – S86 CATA

91


Section 86 CATA - Dwelling House Relief

• FA 2016 – Repealed and replaced section 86 CATA

• With effect from 25th December 2016

• only applies to inheritances with 1 exception

• Only applies to disponer’s PPR

• No limit on the value of the property inherited

• Value of the property excluded from the taxable inheritance provided conditions satisfied

• No restriction on who can inherit – applies to anyone regardless of relationship with disponer

92

93

Disponer conditions Successor conditions

PPR at date of death PPR for 3 yrs immediately preceding to date of inheritance(DOH) orIf current house replaced previous PPR then that house and the replaced house was PPR for 3 out of 4 yrs immediately preceding DOH

At DOH only dwelling house in which a beneficial interest is held or successor is beneficially entitled to

Must occupy as PPR for 6 years after DOH

If sold within 6years of DOH then proceeds of sale must be reinvested to avoid clawback. Only have 1 year in which to reinvest as must combined occupation of inherited house and replacement house must be 6 out of the 7 years commencing on DOH.

94

Disponer conditions Successor conditions

No clawback of relief if• over 66 yrs at DOH and property is sold or ceased to be occupied within the 6

years or• Successor ceases to occupy in consequences of mental or physical infirmity (

must be certified) or• Successor required to be absent in consequence of conditions imposed by

employer to reside elsewhere

Partial clawback where consideration of sale of inherited house exceeds the consideration on the replacement house. Taxable value of the inheritance is reduced by the fraction consideration for replacement house/ consideration received on sale.

Can be taken as a gift where the donee is a dependant relative i.e. aged 65 or over or permanently and totally incapacitated by reason of mental or physical infirmity from maintaining themselves. Deemed to be an inheritance on date of gift.Does not need to have occupied it at date of gift.

Things to consider

• “is the only dwelling house … in which the successor has a beneficial interest at the date of inheritance” where a house is held as tenants in common and the successor inherits the others interest – the inheritance of the other interest would seem not to disqualify the successor from DHR.

• Watch out for inheritance of more than one dwelling house under a Will. 2007 Circuit court judgement

• Relief can apply to foreign property if conditions satisfied

• Beneficial interest in a dwelling also includes any interest in a foreign dwelling

• Deemed occupation for both disponer and successor where they ceased to occupy the house in consequence of their mental or physical infirmity

95


Things to consider

• Watch out for replacement house (if more expensive)– 100% of sale proceeds must be reinvested. Successor might be only be able to reinvest the net of expenses sale proceeds. In which case arguably there is a full clawback of the relief.

• Will planning

• Date of inheritance

• “ beneficial interest” would include a leasehold interest of any length

96


Things to consider

• If an inherited property is transferred into joint names of the successors spouse, then technically there is a clawback of the relief. However Revenue may grant a concession in these cases. Advisable to seek Revenue concession in each and every case in advance of any transfer.

97


Interaction with Agricultural Relief

98

DHR Agricultural Relief

Full exemption 90%

No farmer test Farmer test

Can’t have an interest in any other dwelling house

Claw back – disposed 6 yrs if SP not reinvested

Claw back if sold within 6 yrs –reinvest in any agri property

Residence conditions No residence conditions

Questions?

Thank You

Paula Keaney

E: [email protected]

M: 0872391460

W:www.doylekeaney.ie

99

mailto:[email protected]

entrepreneurs retirement - doyle keaney · entrepreneurs retirement & dwelling house relief...

Documents