Capital Gains Tax (CGT): Retirement Relief

Question 1

What is Retirement Relief and who can avail it?

Answer 1

Retirement Relief is an important relief for an individual who wishes to dispose of a business during their lifetime.

It can be availed by individuals 55 years old or older who want to dispose of their interest in a business.

There is no requirement for the individual to retire.

Question 2

What types of disposals can qualify for Retirement Relief?

Answer 2

Retirement Relief can apply to the disposal of:

1. Sole trade assets
2. Shares in a limited company
3. Certain personally-owned assets

Question 3

How does the amount of Retirement Relief vary depending on the recipient of the disposed assets?

Answer 3

The amount of Retirement Relief depends on whether the assets are disposed of to:

1. NOT a Child
2. A Child

Question 4

What are the lifetime limits for Retirement Relief on disposals to persons other than a child?

Answer 4

€750k lifetime limit on sales proceeds for individuals aged 55-65

€500k lifetime limit on sales proceeds for individuals aged >65

Question 5

What is the Retirement Relief for disposals to a child?

Answer 5

For individuals aged 55-65: Full relief from CGT, no lifetime limit.

For individuals aged >65: Relief is available only on market value up to €3 million. Excess is subject to CGT.

Question 6

How does Retirement Relief interact with other reliefs such as the Annual Exemption and Transfer of a Business to a Company Relief?

Answer 6

Annual Exemption: No annual exemption available to the individual in the year retirement relief is applied.

Transfer of a Business to a Company Relief (Session 4.2):
Retirement Relief will only apply to reduce the CGT on the taxable portion of the gain if the transfer is for bona fide commercial reasons.

Question 7

What are Chargeable Business Assets for CGT purposes?

Answer 7

Assets owned & used in the business for at least 10 years.

Chargeable to CGT if disposed of:
1. Buildings
2. Goodwill
3. Plant & machinery.

Question 8

Are there any exceptions to the 10-year ownership requirement for tangible moveable property (machinery) under Chargeable Business Assets?

Answer 8

No need for tangible moveable property (machinery) to be owned for 10 years.

Period of ownership includes the period owned by a spouse.

Period of use includes the period of use by a deceased spouse.

Question 9

What are the exclusions for Chargeable Business Assets under Retirement Relief? (3 exclusions)

Answer 9

1. Inventory/receivables are not chargeable assets.
2. Chargeable assets not used for the business (investments) are excluded.
3. Goodwill disposed to a company where the individual is connected with the company immediately after disposal (unless bona fide).

Question 10

What is considered in the disposal of a sole trade under Retirement Relief?

Answer 10

An individual may dispose of the entire business or an interest in the business/assets of the business and qualify for Retirement Relief.

The availability of Retirement Relief is assessed in respect of the Chargeable Business Assets (CBA).

Chargeable assets that are not CBAs are assessed to CGT.

Question 11

What are the conditions for the disposal of a sole trade under Retirement Relief? (3 conditions)

Answer 11

1. Individual must be at least 55 years old.
2. Chargeable Business Assets (CBAs) must be owned and used in the business for at least 10 years.
3. Sales proceeds must be within lifetime limits.

Question 12

What are the conditions for qualifying shares under Retirement Relief on disposal of shares? (5 conditions)

Answer 12

1. Shares must be owned for at least 10 years.
2. The company must be a farming/trading company or a holding company.
3. It must be a “family company”.
4. The individual must have been a full-time working director for at least 5 years.
5. The individual must have been a working director for at least 10 years.

Question 13

What defines a “Family Company” for the purposes of Retirement Relief?

Answer 13

A “Family Company” is defined as:

1. The individual controls at least 25% of the voting rights, OR
2. The individual controls 10% of the voting rights, and 75% is controlled by family members of the individual or their spouse.

Question 14

How are periods of ownership and directorship considered for Retirement Relief?

Answer 14

Period of ownership includes the period of ownership of a spouse.

Period of directorship includes the period of directorship of a deceased spouse.

Period of ownership and directorship can include the period as a sole trader prior to incorporation, provided the individual qualified for “transfer of business to company” relief.

Question 15

Under what conditions can the disposal of certain personally-owned business assets qualify for retirement relief?

Answer 15

Disposal of personally-owned assets such as land, buildings, plant, or machinery may qualify for retirement relief provided they are:

1. Owned and used by the company for 10 years at the date of disposal (not required for plant and machinery).
2. Transferred at the same time and to the same person as shares in the company.

Question 16

What are the CGT Retirement Relief conditions for disposals to a non-child for individuals aged 55-65?

Answer 16

If sales proceeds from the chargeable business assets (CBAs) are less than €750k, full retirement relief is available.

If sales proceeds exceed €750k, marginal relief is possible:
Maximum CGT = 50% x [Sales proceeds - €750k]

Note: €750k is a lifetime limit for individuals aged 55-65.

Question 17

What should be ignored when determining if consideration exceeds the lifetime limit for Retirement Relief?

Answer 17

Ignore disposals to a child.
Ignore disposals made pre-55.

Question 18

What should be included when determining if consideration exceeds the lifetime limit for Retirement Relief?

Answer 18

Include the market value of disposal of business assets to a spouse over 55, even though the disposal is at No Gain/No Loss.

Include proceeds from the company buyback of shares subject to CGT over 55 if they qualified for Retirement Relief.

Note: If aggregate proceeds for all qualifying assets sold exceed €750,000, then relief is withdrawn from all disposals that qualified for Retirement Relief.

Question 19

What are the conditions for Retirement Relief on disposals to a non-child if the individual is 66 or over?

Answer 19

If sales proceeds from the Chargeable Business Assets (CBAs) are less than €500k, full Retirement Relief is available.

If sales proceeds are more than €500k, marginal relief is possible:
Maximum CGT = 50% x [Sales proceeds - €500k]

€500k is a lifetime limit on disposals since age 65+

Question 20

What relationships are included in the definition of “Child” for the purposes of Retirement Relief? (6 relationships)

Answer 20

1. Child of spouse
2. Favourite niece/nephew
3. Foster/adopted child
4. Child of a deceased child
5. Child of a deceased child of a spouse (step child of your deceased spouse)
6. Child of a Spouse of a deceased child (step grandchild)

Question 21

What are the conditions for a “Favourite Niece/Nephew” to be considered a “Child” for the purposes of Retirement Relief?

Answer 21

Worked substantially on a full-time basis for 5 years in the business.
Does not include niece/nephew of a spouse.

Question 22

What are the conditions for a “Foster Child” to be considered a “Child” for the purposes of Retirement Relief?

Answer 22

Resided with and maintained at the expense of the individual making the disposal for:
- 5 years, or
- Periods which together amounted to 5 years.

Question 23

What happens if a “Child” disposes of business assets within 6 years after receiving them with Retirement Relief?

Answer 23

The “Child” will be liable for:
1. CGT on the disposal of the asset.
2. CGT which would have been payable by the parent if Retirement Relief had not been claimed (Clawback of Retirement Relief availed of).