Retirement Relief

“The question isn't at what age I want to retire, it's at what income” ~George Foreman

The sooner you start to plan for your retirement the sooner you will have the option to retire. Of course you may not want to have an early retirement and want to keep working as long as you are able, but nevertheless it’s good to have the option.

There is a tax relief known as “retirement relief”, which has a great benefit for those who like to keep working in that to qualify you don’t even have to retire! Retirement relief entitles you to capital gains tax relief on the disposal of “qualifying assets”. The conditions to qualify for the relief are as follows:

• The disposal must be made by an individual (and not for example by a company).
• The individual must be 55 or over.
• The disposal must be of qualifying assets (e.g. business assets or family company shares).
• The qualifying assets must have been held for a minimum period immediately prior to the disposal – normally 10 years.
• When the disposal is of family company shares the individual must have been a working director for a minimum of 10 years up to the date of disposal, 5 years of which were on a full time basis.

You will note that the relief is available when you’re 55 years old, but you must have held the assets for 10 years. That means planning for retirement relief begins at 45.

Passing a Business to the Next Generation

Although the relief is called Retirement Relief you can remain actively involved in the business. Amongst other things this is a very useful tool for succession planning.

If you are disposing of the business assets to a child then there will be no Capital Gains Tax if the conditions are met irrespective of the value of the assets. It is important to be aware that there is a clawback on the relief if the child disposes of the assets within 6 years. This is an anti-avoidance measure taken by Revenue to ensure the relief isn’t abused.

The definition of “child” includes the child of a deceased child and a niece/nephew who has worked on a full time basis in the business for 5 years ending on the date of disposal.

Disposals to Third Parties

You may want to retire and sell your business assets or crystallise the value you’ve created in your business and try your hand at something new. The disposal of business assets to a third party will qualify for full relief up to a value of €750,000.

Where the proceeds are greater than €750,000 you may be entitled to marginal relief, which will limit your capital gains tax exposure.

The €750,000 is an individual limit, so if you and your spouse are working together in a business and own the qualifying assets 50:50 you will both qualify for the relief, meaning you could receive up to €1.5m tax free.

Financial Planning

A successful entrepreneur should have a clear vision, involving short, medium and long term financial planning. Retirement might seem a long way away but it is important not to lose sight of why you got into business in the first place.

There are significant and beneficial tax reliefs out there. You should ensure that you maximise your entitlements and position yourself correctly to avail of these benefits. Planning for your retirement is a key long term goal for everyone. As part of your overall personal tax plan you should ensure the correct and most beneficial business structure for retirement relief is in place. Due to the 10 year holding requirement this planning should start at age 45.

Final Word

Every case needs to be assessed on its own merits, but long term planning and foresight should reap benefits down the line. If you don’t have a long term plan in place it is worth taking the time to assess what your needs will be and how you are going to meet them. As noted elsewhere in this brochure a pension plan is the starting point for retirement planning, but the good ideas don’t end there. Only by having a clear vision of your requirements will you be able plan effectively to achieve your goals. Once the long term plan is in place it will need only occasional review. The best time to start planning for the future is now.