Retirement relief is a recognition from the Irish State that a person’s business represents their life work.
In many cases, it can also represent their entire retirement plan.
In the normal course of events, the sale of any large business asset would trigger a capital gains tax liability at 33%.
However, this specific provision allows for an exemption on the amount of CGT payable when a business is sold.
Capital Gains
Retirement relief allows for a 0% CGT liability up to certain limits, depending on the age of the disponer;
- The first €750,000 is exempt from CGT when aged between 55 and 65
- The first €500,000 is exempt from CGT when aged 66 and over.
This means that if you sell your company for €750k at age 62 you pay NO CGT whatsoever.
However, any proceeds in excess of the threshold are subject to CGT at the standard rate of 33%.
Even though it’s called retirement relief you don’t actually have to step away from the business.
The value of the business is important so you should get advice before crossing the age threshold.
As you can see above, there is a significant difference in the amount of tax paid depending on the age of the disponer.
Retirement relief is available to all business owners in the event that a chargeable event occurs i.e. a sale or liquidation.
It is entirely and completely separate from any director pension benefits you have built up in the meantime.
This is why it always makes sense to fund a directors pension through your business.
You can find out exactly how much your company can build up for you right here in 30 seconds.
If you would like to discuss your situation then call me on 01 442 3929 or email me at kevin@thepensionstore.ie