Finance (No. 2) Bill 2023 - Entrepreneurship

Revised Capital Gains Tax (‘CGT’) Entrepreneur Relief

No changes have been made to the reduced rate of CGT which can apply (i.e. 10%) or the quantum of the relief (i.e. the reduced rate of CGT can apply to lifetime gains of up to €1m).

However, the definition of “holding company” is amended to clarify that it means a company:

  • that holds shares in other companies all of which are its 51% subsidiaries, and
  • whose business consists wholly or mainly of the holding of shares in those subsidiaries.

Capital Gains Tax (‘CGT’) Retirement Relief

Retirement relief is a relief from CGT on the disposal of qualifying assets used in a trade and shares in certain family companies. The individual disposing of the asset must be aged 55 or over.

There are two forms of the relief:

(i)   Third Party Disposals

In respect of disposals to a person other than a child of the disponer, full relief from CGT can be claimed where the market value of the assets does not exceed €750,000 and where the disponer is aged between 55 and 65. A cap of €500,000 applies if the individual is aged 66 or more.

The Bill extends the €750,000 cap to individuals aged from 55 to 69 years of age.

The €500,000 cap will apply if the individual is aged 70 or older at the date of disposal.

These amendments apply to disposals on or after 1 January 2025.

(ii)   Disposals to a Child

Currently, full relief from CGT is available for individuals who dispose of qualifying shares or assets to a child between the ages of 55 and 65 inclusive. The relief is capped at €3m for individuals aged 66 or over at the time of disposal

The Finance Bill proposes to amend the relief in respect of disposals to a child from 1 January 2025 as follows:

  • The €3m cap will now apply from age 70 onwards
  • A €10m limit on the value of qualifying assets disposed of will apply between the ages of 55 and 69 inclusive. Where the limit is exceeded, the value in excess of €10m is subject to CGT. Previous transfers to a child are taken into account in determining if the threshold is breached, but the rules apply differently depending on when the prior disposal occurred and when the individual turned 66.

Whilst the extension of the age limit in respect of the €3m cap will be welcomed by smaller businesses, the introduction of a €10m cap for all transfers prior to age 70 will be an impediment for larger business and may negatively impact on inter-generational lifetime transfers.

There is a window until 1 January 2025 before the new measures apply. With this in mind, business owners should carefully consider the impact of the new rules on their succession plans in the interim.

Angel Investor Relief

On Budget Day the Minister announced a new CGT relief which will provide for a reduced CGT rate of 16% (18% if through a partnership) on the disposal of qualifying investments. It was introduced as a measure to encourage angel investment in innovative start-up companies. It was indicated that there would be limits on the relief – capped at 200% of the investment and subject to a lifetime limit of €3m gains. It was also stated that the investment must be in newly issued shares costing at least €10,000 and representing between 5% and 49% of the ordinary share capital.

Details of the relief are not included in the Finance Bill but will be included as part of the Committee Stage. This may suggest that certain aspects may be tweaked further.

Employment Investment Incentive (EII) Scheme

The Bill proposes a number of changes to the Employment and Investment Incentive (“EII”) Scheme, in response to the revision of the EU General Block Exemption Regulation. The lifetime limit on the amount of risk finance investment that can be raised is increased to €16.5 million. The limit on which an investor can get relief on an individual basis is increased to €500,000 and the period of investment has also been standardised to 4 years. The rate of relief available to investors will depend on the basis under which the company seeking to raise risk capital is eligible – for companies which have not yet commenced operations, the relief for investment will be based on 125% of the amount subscribed.

The changes apply from 1 January 2024. It is worth noting that a further review of EIIS will take place early next year with a view to simplifying it further.

Return to Finance (No.2) Bill 2023 Commentary

Team Members

Jackie Masterson

Head of Tax, Tax Partner

View Profile