Retirement Relief

Retirement relief

Retirement relief applies on the sale or transfer (including by gift) of assets by someone over 55 years of age. It applies when business assets or shares are disposed of, irrespective of whether the person concerned actually retires.  Retirement is not a condition of the relief, so that the common name given to it is a misnomer.

Relief is available to persons over 55 years who dispose of all or part of their business or farming assets or shares in a trading company. The individual concerned must have owned and used the assets for at least 10 years prior to the disposal.

The relief applies to a person who has been trading in his or her  sole name or as a partner. It also applies to a person who disposes of shares in a company.

The relief does not apply if the main purpose of the disposal is the avoidance of tax and there are not genuine commercial reasons. The annual allowance cannot also be claimed in the same year.

10 Years Holding

In the case of a trade, the assets concerned must comprise business assets. This excludes investments. They must have been used as business assets for at least 10 years (subject to other possibilities).

Plant and machinery need not be held for 10 years. Assets qualifying for rollover relief or  acquired from spouses are deemed to be held since the initial acquisition of the original replaced asset or by the spouse.

Where land has been let, it must have been used for a minimum of 10 years for farming purposes prior to the time the land  was first left.

Shares must generally have been held for 10 years. They may be deemed so held where they replaced earlier holdings.

To Family or Others

There are two version of the relief. One version apples where the asset is transferred to a qualifying family members (generally a child). The other applies where the transfer is to somebody other than a child.

The €750,000 limitation does not apply  where the assets are transferred to a child. The separate provisions also applies to a nephew working full-time on a substantially full-time basis for  five years prior to the disposal. It also applies to a foster child maintained at the expense of the individual makes the disposal for a period of at least five years or you must be periods of five years before the foster child attains the age of 18 years. A child of a deceased child also qualifies.

If the child does not retain the assets for at least 5 years, the relief  will be withdrawn and the child is liable for the tax originally exempted. The child is also liable to the capital gains if any arising on the disposal within five years.

Formerly, a transfer to a child etc. was  totally exempt irrespective of the price or value. This became  limited to where the person making their disposal is over 55 years and under 66 years of age.

In the case of persons aged  66 years, FA 2012 provided a limit of  €3 million on the maximum consideration, applicable from 1st January 2014. Anti-avoidance provisions act add together assets transferred to a child and to accompany control by a child the purpose of this limit.

Finance Act 2023 amends relief for individuals who dispose of qualifying assets used in the course of a business or farm trade to a child, as defined in the section. Unrestricted relief is granted on the disposal of such assets by individuals aged 55 to 65 and the relief is capped at €3 million for individuals aged 66 or over. The amendment increases the age at which the current €3 million threshold applies, from 66 to 70. The amendment also introduces a limit of €10 million on the value of qualifying assets in respect of which relief is available where such assets are disposed of by individuals aged 55 to 69 to a child. The new age limits and the €10 million cap will apply to disposals made on or after 1 January 2025. The relief must be claimed in a tax return filed by the individual.

Disposal Sale to Non- Child

Where the disposal is to somebody other than a child of the person disposing  the gain is fully exempt only if the price does not exceed €750,000.The  ceiling of €750,000 with marginal relief applies to disposals by persons aged between 55 years and  66 years to third parties. A lower ceiling of €500,000 applies to disposals by persons individuals aged over 66 years after 1st January 2014.

Where the price is just above the threshold  so-called marginal relief applies. This relief caps the maximum CGT payable as half of the difference between the sale price and thereshold. The proportion reference to business assets is the price applied by the chargeable business assets overall chargeable assets.

Where a person makes several different transfers of assets, the €750,0000  / €500,000 maximum lifetime is used. The threshold is available to each spouse. However, transfers to spouses use up tot he threshold. The threshold s reduced by the redemptions and share buybacks by the company.

Finance Act 2023 amends the relief for individuals who dispose of qualifying assets used in the course of a business or farm trade to persons other than a child. Full relief is given where the consideration for the disposal of such assets is less than €750,000 for persons aged 55 to 65 and less than €500,000 for persons aged 66 or over.

The amendment extends the higher threshold of €750,000 to disposals of qualifying assets made by individuals aged 55 to 69 and will apply to disposals made on or after 1 January 2025. The relief must be claimed in a tax return filed by the individual.

Chargeable Business Assets

The relief applies to disposals of chargeable business assets and shares to the extent that they relate to chargeable business assets. Chargeable business assets are those which are for the purpose of the trade profession office or employment carried out by that individual. They would not include investment assets and assets not included in the business.

A chargeable asset is any asset other than one which is exempt from capital gains tax (such as debtors stock and cash.) Assets other than tangible movable assets must be owned and used for the trade for not less than 10 years up to the time of disposal.

Where the disposal consists of chargeable business assets and other chargeable assets the proportion of the gain referable to the proportion of chargeable business assets as a proportion of all chargeable assets, is exempt. Therefore if the gain includes assets which were not used in the business we do not qualify within the definition of a chargeable business asset above that proportionate part will not enjoy the exemption.

Assets Used by Company

The relief extends to the disposal of land or buildings, plant or machinery  owned for more than  10 years by the individual but used by the family company during the period of ownership for the purpose of the business, which is disposed at  the same time as the shares in the company.This may include a building leased to company by the owner of the shares.

Shares in Family Company

The relief is available on the disposal to shares in a family trading or farming company . Conditions apply

• 25% of the voting shares must be  controlled by the person disposing of the shares or
• 10% of the voting shares must be held by the person and his family as defined
• The company . or its subsidiaries must be engaged in trading or farming for 10 years
• The taxpayer must have owned the shares in the company for at least 10 years,
• the claimant must have been a working director  for 10 years and
• a full time working director full-time for at least five years

A family company is one in which the person disposing of the assets

• holds  25% or more of the voting rights or
• has 10% or more when together with his family including that shareholding hold 75% or more of the voting rights
• A family company includes a trading group of companies comprising a holding company and its 75% subsidiaries. Subsidiaries may be held directly or indirectly. The shares may be in a trade or profession.

Finance Act 2023 inserts a new definition for “holding company” in relation to CGT relief for individuals who dispose of assets of a qualifying business or shares in a qualifying company or group of companies which are owned for a continuous period of 3 years in the 5-year period immediately prior to the disposal of those assets.

The new definition provides that for the purpose of the relief, all subsidiaries of a holding company must be at least 51 per cent subsidiaries and the business of that holding company must consist wholly or mainly of holding shares in those subsidiaries.

Periods Counted In

The period of ownership and employment of a deceased spouse counts towards the relevant period. The period of a deceased spouse directorship is deemed to be that of the other spouse.

The period of ownership of shares in a qualifying company includes the period of ownership of business assets that were transferred to the company under the relief for incorporation of businesses. This is also deemed to be a period of full-time directorships.

Where rollover relief was previously claimed under the old legislation the replacement asset is deemed purchased at the time of purchase of the original asset.

Chargeable Company Assets

In the same way as in relation to the disposal of chargeable business assets,  relief is only available in relation to the proportion of the value of the company attributable to chargeable business assets. The portion attributable to non-qualifying assets, such as investments etc is disallowed.

An apportionment is made by reference to the proportion that the business assets represent as a proportion of the entire assets.  This is the market value of the chargeable business assets as a proportion of all chargeable (subject to CGT) assets.

Anti-Avoidance

Where the disposal is made other than to a qualifying family member the relief does not apply to shares disposed of to a company connected with the person making the disposal, (connection before or after the disposal has been made) . There is an exemption from this anti-avoidance provision for the disposal of the shares or other securities can be shown to be made for qualified commercial reasons not forming part of a scheme or arrangement the sole or principal purpose of which is the avoidance of tax.

Artificial structures and mechanisms to make the person disposing not be connected to the recipient company are also the subject of anti-avoidance legislation. The relief may be denied where this is the case.

Farming

Retirement relief applies to farming. There are further provisions which facilitate retirement from farming. See also the separate chapter.

The relief applies to land used for farming for at least 10 years prior to transferring an interest under the European Union early retirement from farming provisions

Single farm payment rights dispose of at the same time as land also qualify for the exemption subject to conditions.

The relief applies to compensation paid to certain fishermen arising from decommissioning of fishing vessels under certain schemes promoted by the Department of agriculture. The person disposing of the vessel must have owned and use the vessel for a period of six years before that time and be at least 45 years of age at the time the restless disposed of.

Farming partnership is one which carries on the trade of farming. Relief was available for assets disposed of which have been held by the family partnership for 10 years prior to its dissolution. Where it is acquired by inheritance the period of ownership of the predecessor is included. The relief ceased at the end of 2013.

The Finance Act 2017 provides that the leasing of agricultural land for solar energy production does not affect entitlement to the relief where 50 percent or less of the total area of the leased land was used for this purpose. The provision applies to disposals after 1 January 2018.

Lease Farm Land

The relief may be available in respect of land that has been leased prior to its disposal. It must have been leased for not less than 25 years before the disposal and have been owned and used for farming by the person concerned for a period of 10 years prior to the leasing.

The disposal must be to a child. If the disposal is not to a child the relief applies of the land was there for a period of no longer than 15 years ending with the disposal and was owned and used for farming by the individual concerned for a period of not less than 10 years prior to the letting and land was leased for farming purposes to the same person for at least five consecutive years.

Where farmers have left land on conacre (periodical licences) a disposal  may qualify for relief in the context of retirement prior to 2017 subject to certain conditions. The land must have been owned and farmed by the person concerned for at least 10 years prior to the leasing or letting on conacre.