A Complete Guide To Retirement Relief In Ireland

Retirement relief is a crucial tax benefit available to individuals in Ireland who are retiring and looking to dispose of their business or farm assets. This guide provides an in-depth overview of retirement relief, including its purpose, eligibility criteria, and the process for claiming it.

Whether you are a self-employed business owner, a farmer, or a company director, understanding retirement relief can help you transition smoothly into retirement without incurring significant capital gains tax (CGT) liabilities.

What is Retirement Relief?

Retirement relief is a provision under the Irish tax system designed to facilitate the transfer or sale of business or farm assets upon retirement. It allows individuals to dispose of these assets with the possibility of significantly reducing or eliminating CGT, provided certain conditions are met.

The relief aims to support retiring individuals by reducing the financial burden associated with disposing of your business or farm to:

your child
someone outside your family.

Retirement relief is particularly beneficial for small business owners and farmers who have invested significant time and resources into building their enterprises. By offering tax relief, the government encourages the continued operation of these businesses, contributing to the economy and local communities.

How Does Retirement Relief Work?

To qualify for retirement relief, several conditions must be met.

Age Requirement: The individual must be at least 55 years old. This age requirement ensures that the relief is targeted at those who are genuinely retiring from active business or farming activities.
Ownership Period: The assets being disposed of must have been owned by the individual for at least ten years. This ownership period demonstrates a long-term commitment to the business or farm.
Active Participation: In addition to the age and ownership requirements, the individual must have been actively involved in the business or farming activities. This means that passive investors or those with minimal involvement in the day-to-day operations may not qualify for retirement relief.

Claiming Retirement Relief

Once the above conditions are met, individuals can proceed with claiming retirement relief.

The first step is to assess eligibility and ensure that all criteria are satisfied. This may involve reviewing financial records, business documentation, and other relevant materials.
Second, the individual should obtain a professional valuation of the qualifying assets to determine their market value. Accurate valuation is essential for calculating the amount of relief available.
To claim the relief, the individual must submit a claim to the Revenue Commissioners. This process involves completing the appropriate forms and providing supporting documentation, such as proof of ownership, evidence of active involvement, and the asset valuation report.
Ensure to maintain these records for a period of six years as required by Revenue.

Remember to include the relief when calculating your CGT. Additionally, you must include details of the gain when filing your CGT return. The CGT return deadline is 31 October of the year following disposal.

Who Can Qualify for Retirement Relief?

Retirement relief is available to various individuals, including business owners, farmers, and company directors. Each group has specific criteria and considerations.

Business Owners

Business owners who are looking to retire and dispose of their business assets can qualify for retirement relief if they meet the age, ownership, and active participation requirements. This group includes sole traders, partners in a partnership, and shareholders in private companies. Business owners can significantly reduce or eliminate their CGT liability when transferring or selling their business by claiming retirement relief.

Farmers

Farmers can also benefit from retirement relief when disposing of their agricultural land and assets. This relief is particularly important for ensuring the smooth transition of family farms to the next generation. To qualify, farmers must meet the same age, ownership, and active participation criteria as other business owners. Additionally, specific provisions apply to farm retirement relief, which can include enhanced exemption limits for qualifying farmers aged 66 and over.

Company Directors

Company directors who hold shares in a family company may qualify for retirement relief when disposing of their shares. The same eligibility criteria apply, including the age, ownership, and active participation requirements. Retirement relief can be a valuable tool for company directors looking to exit their roles and transfer ownership to their children or sell their shares.

Conditions and Limits of Retirement Relief

Understanding the financial limits and qualifying assets is essential for maximising the benefits of retirement relief. The relief is subject to specific financial thresholds, which determines the amount of CGT that can be exempted.

Financial Limits

The basic exemption limit for retirement relief is up to €750,000 of qualifying assets. This means that individuals can dispose of assets valued at up to this amount without incurring CGT. For qualifying farmers aged 66 and over, the exemption limit is increased to €1,000,000, providing additional support for the agricultural sector.

Currently, family business owners aged between 55 and 65 who qualify for retirement relief can transfer their business to their children free from Capital Gains Tax (CGT) in many cases. Once they reach 66, a €3 million cap applies to the value of any business they wish to transfer to their children, with any gains above €3 million being subject to CGT at 33%.

However, there are changes set to commence on January 1, 2025:

A limit of €10 million will apply to the value of business assets that family business owners aged between 55 and 69 could pass free of CGT to their children.
The €3 million cap referred to above will now apply from age 70 onwards (instead of 66).

While increasing the starting age for the €3 million cap to 70 is a welcome change, introducing a limitation on the value of business assets that those aged 55–69 can transfer to their children could result in family businesses needing to be sold off, either in whole or in part, in order to fund tax bills.

Qualifying Assets

Qualifying assets for retirement relief include business assets such as machinery, buildings, and land used for business purposes. Shares in family companies also qualify, provided the individual has been actively involved in the business. It is important to ensure that the assets being disposed of meet the criteria set by the Revenue Commissioners to qualify for relief.

Disposal of Business or Farm to Your Child

When disposing of a business or farm to your child, the amount of relief that you can claim depends on your age at the time of disposal. The relief structure is as follows:

If you are between 55 and 65, you can claim full relief.
If you are 66 or older, the relief is restricted to €3 million.

It is important to note that Revenue will withdraw the relief if your child disposes of the asset within six years. Your child must then pay CGT on the original disposal by you and the CGT on their own disposal. This condition ensures that the assets remain within the family for a reasonable period before being sold.

Disposal of Business or Farm to Someone Outside of Family

The rules differ slightly if you are disposing of your business or farm to someone outside of your family. You can claim complete relief when the market value at the time of disposal does not exceed the threshold of:

€750,000 for disposals if you are under 66.
€500,000 for disposals if you are 66 or older.

If the market value exceeds these thresholds, marginal relief may apply. This limits the CGT to half the difference between the market value and the threshold. It is also important to note that the €750,000 and €500,000 thresholds are lifetime limits. If you exceed these thresholds, the relief will be withdrawn, and you will be liable for CGT on all disposals. Visit the Revenue website for more information on Retirement Relief conditions.

Retirement Relief in the Budget 2024

The Budget 2024 introduces key changes to retirement relief, enhancing its benefits for retiring individuals.

On Budget Day, the Minister announced that the age limit at which the €3 million limit applies is being increased to 70. However, he has also announced that for those aged under 70, a lifetime limit of €10 million will apply. These changes will take effect from 1 January 2025.

How Much is Retirement Relief?

Calculating the amount of retirement relief involves determining the market value of the qualifying assets and applying the relevant exemption limits.

Here is an example:

An individual who is 64 years of age and owns 100% of a trading company valued at €15 million meets all the conditions to qualify for retirement relief and intends to pass the business to their children before they reach 65 in 2026.

In 2026, as they will have passed the 01st of January 2025 deadline then €5 million of the asset ( €15 Million less the newly introduced threshold of €10 million ) will be liable to Capital Gains Tax (CGT) at 33%

If the transaction took place before the 01st of January 2025, no CGT charge will apply. A tax saving of €1.65million.

Accurate valuation is crucial for determining the amount of relief available. Individuals should seek professional advice to ensure their assets are correctly valued, and all eligibility criteria are met.

Common Questions about Retirement Relief

Can You Claim Entrepreneur Relief and Retirement Relief?

Yes, it is possible to claim both entrepreneur relief and retirement relief, provided the conditions for each are met. Entrepreneur relief is available to individuals disposing of business assets who have been actively involved in the business for a minimum period. By claiming both reliefs, individuals can significantly reduce their tax liability on the disposal of business assets.

Retirement Relief for Company Directors

Company directors disposing of shares in a family company can qualify for retirement relief if they meet the ownership and active participation requirements. This relief can facilitate the transition of company ownership to the next generation or the sale of shares to third parties, providing financial stability for retiring directors.

Apply for Retirement Relief with Tax Returns Plus

Retirement relief is a valuable tax benefit for retiring business owners and farmers in Ireland. Understanding the eligibility criteria, conditions, and financial limits is essential for maximising the relief. Understanding the 2024 Budget Highlights and knowing which tax credits you can claim can significantly impact your financial planning and tax liability.

Navigating your tax returns doesn’t have to be complicated! Resources like our guide on Inheritance Tax in Ireland and Filing Capital Gains Tax in Ireland are designed to support you through every step of the process.

For personalised advice and assistance filing your tax returns, complete our short form now to receive a quote and find out how our team can help you claim your retirement relief this year.

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Retirement Relief in Ireland: A Complete Guide