5 Tax Strategies to Reduce Capital Gains When Selling a Business in Ireland
Selling a business can lead to a significant Capital Gains Tax (CGT) liability, but with the right planning, you can legally reduce or defer your tax bill. Here are five key strategies to consider.
- Maximise Entrepreneur Relief
What It Is:
Entrepreneur Relief reduces CGT to 10% (instead of 33%) on qualifying gains up to €1 million when selling shares in a business.
How to Qualify:
– You must own at least 5% of the company and have been actively involved for at least three years.
– The business must be a trading company (investment companies don’t qualify).
Example:
If you sell your business for €1 million, instead of paying €330,000 in CGT, you would only pay €100,000 with Entrepreneur Relief—saving €230,000.
- Use Retirement Relief (Even If You’re Not Retiring)
What It Is:
Retirement Relief allows business owners over 55 to sell or transfer their business tax-free (up to certain limits).
How It Works:
– Selling to a child → No CGT on the sale.
– Selling to someone else:
– Up to €750,000 tax-free if you’re aged 55-65.
– No limit if selling to a child.
– If over 66, the tax-free limit drops to €500,000.
Example:
If you sell your business for €750,000 at age 58, you could pay zero CGT instead of €247,500 (33% of €750K).
- Transfer Shares to a Spouse Before Selling
What It Is:
Transferring shares to your spouse before selling can double the use of reliefs like Entrepreneur Relief.
How It Works:
– If both spouses own 5%+ shares and meet the three-year rule, they each get the €1 million Entrepreneur Relief cap.
– This means €2 million could be taxed at 10% instead of 33%.
Example:
If you and your spouse sell your business for €2 million, instead of paying €660,000 (33% CGT), you would only pay €200,000 (10% CGT). Total savings: €460,000.
- Structure the Sale as an Earn-Out
What It Is:
An earn-out agreement allows part of the business sale price to be paid over time, helping to spread CGT liability across multiple years.
How It Works:
– Instead of receiving a lump sum(taxed at once), you structure payments over several years.
– This can help you stay under tax relief caps and reduce immediate CGT exposure.
Example:
If your business sells for €3 million, but you structure it so you receive €1 million per year over three years, you may qualify for reliefs each year, significantly reducing tax liability.
- Reinvest Proceeds into a Holding Company
What It Is:
If you plan to stay in business, reinvesting sale proceeds into a holding company may defer CGT.
How It Works:
– Instead of selling shares personally, you sell through a company, then reinvest proceeds into another business.
– This may allow you to defer tax until you withdraw funds later.
Example:
Instead of paying 33% CGT immediately, funds remain in the holding company and can be used for new investments, pensions, or acquisitions, delaying tax liability.
Final Thoughts
With proper planning, business owners can legally reduce or defer Capital Gains Tax when selling their company. The best strategy depends on your business structure, retirement plans, and succession goals.
Would you like expert advice on structuring your business sale tax-efficiently?
For more detailed information and personalised advice, feel free to contact us at MKConsultancy.ie or TaxTalk.ie. We are here to help you make the most of your income while minimising your tax liabilities.
February 2025