For business owners, retirement is an important turning point. In addition to securing a comfortable retirement, entrepreneurs frequently want to do it in a way that minimises their tax liability. Retirement relief for business owners offers substantial savings by reducing or even eliminating Capital Gains Tax (CGT) on the sale of business assets. In this article you’ll find how retirement relief for business owners works, what’s the eligibility criteria, and strategies for maximising its benefits.
In simple terms, retirement relief enables business owners to transfer or sell their company assets to reduce their capital gains tax (CGT). The current CGT rate in Ireland is 33%, which can result in a substantial tax burden when selling valuable assets. However, under specific circumstances, retirement relief can reduce this liability offering business owners who want to leave their companies a strong incentive.
However, it is not necessary to completely stop working in order to take advantage of this tax benefit. When they sell their company or stock, business owners might still profit from tax advantages. This flexibility makes retirement relief an attractive option for phased exits or gradual transitions out of business operations.
When transitioning out of their business retirement relief is essential for business owners looking to preserve their wealth. However, understanding the rules and recent updates in this field is crucial to avoid unwanted tax burdens.
In order to take advantage of retirement relief, each individual is subject to qualifying criteria, such as:
The amount of retirement relief you can claim depends on several factors, including the age at which you dispose of the business assets and the market value of those assets.
– Disposal Under Age 66: If you are between 55 and 65, you can claim full retirement relief for qualifying assets up to €750,000 based on the market value at the time of the disposal. Any amount above this threshold will be subject to CGT, with marginal relief applied to limit the tax liability.
– Disposal Over Age 66: For those over 66, the limit decreases to €500,000. Similar to the under-66 threshold, marginal relief applies if the asset’s value exceeds this amount.
For contractors and business owners who decide to wind down their companies rather than selling to a third party, retirement relief can be claimed while the company is being liquidated. By appointing a liquidator to manage the legal and financial aspects of the process, business owners can access remaining funds with minimal CGT impact assuming that the core criteria requirements are met. Liquidation costs can potentially be tax-deductible as business expense
In order to maximise the benefits available under retirement relief, it is necessary to ensure that there is proper advance planning. Here are some steps to consider:
– Calculate Your Retirement Target: First, determine what income you would like to receive during retirement. Create a cash flow model to project your future expenses, debts, assets, and lifestyle goals. This will help you identify the “magic number” needed to retire comfortably.
– Assess The Value Of Your Business: If you anticipate that your business may exceed the retirement relief limits (€750,000 or €500,000, depending on your age), then consider taking reasonable steps such as transferring the shares to your spouse who also satisfies qualifying criteria. Both spouses are entitled to claim retirement relief separately however transfers to spouses use up the total applicable threshold.
– Consider Pension Funding: Redirection of profits into a pension plan can reduce the value of the business and provide another tax-efficient way to extract value over time. This approach aligns with long-term retirement goals and keeps the business value within retirement relief limits.
remain within the retirement relief limits.
– Plan the Timing of Your Exit: The timing of asset disposal significantly impacts your tax liability. For example, waiting until you’re under 66 can allow for a higher retirement relief threshold, while ensuring that your child inherits assets within six years of your disposal can prevent potential clawbacks.
Let us assume that a business owner under the age of 66, estimates that his or her business would increase in value over the €750,000 mark within five years. To prepare for this eventuality, they could take a few moves and exit the market while rendering the tax payable as small as possible:
The retirement relief budget for 2025 introduced critical updates to the structure of retirement relief:
Retirement relief presents a valuable opportunity for business owners to reduce or eliminate CGT. However, maximising this benefit involves navigating complex criteria, timing asset disposals effectively, and integrating strategies such as pension funding and share transfers. The intricate nature of these decisions highlights the importance of professional assistance.
Fairstone experts can provide comprehensive retirement planning guidance tailored to your unique needs. With a thorough understanding of retirement planning strategies and the most recent legislative changes, Fairstone’s team can help you develop a retirement plan that optimises relief benefits while aligning with your long-term financial goals. This expert support ensures that you make informed choices, protecting the wealth you have built and setting you on a path to a secure and rewarding retirement. Book today your no-obligation retirement planning consultation with Fairstone.
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