AITI Chartered Tax Adviser

What is retirement relief?

Two types of “retirement” relief apply if you are aged 55 or more and you dispose of a business or farm (qualifying assets):

(a) If you dispose of your business or farm to your child, the gain is exempt. There is no limit on the value of business assets that may be passed to your child in this way. “Child” includes an adopted child, a favourite nephew or niece, and, a foster child. From 1 January 2014, in respect of disposals by persons aged 66 or over, the maximum value that can be passed tax-free to children is €3,000,000.

(b) If you dispose of your business or farm to any person other than a child within (a), the gain is exempt if the proceeds do not exceed €750,000. If the disposal proceeds exceed €750,000, marginal relief ensures the CGT may not exceed half the difference between the proceeds and €750,000. This is a lifetime limit per individual. From 1 January 2014, in respect of disposals by persons aged 66 or over, the €750,000 limit is reduced to €500,000.

These two reliefs operate independently of each other. Therefore, if you had two separate businesses, you could claim relief under (a) on the disposal of the first business and under (b) on the disposal of the second business.

Qualifying assets means:

(a) Chargeable business assets, i.e., assets including goodwill, but not shares or investments used in the trade (including farming) carried on by you or your family company. You must have owned the assets throughout the 10 year period ending on the disposal date.

(b) Shares in a family company, i.e., a trading company, farming company or holding company in which you hold at least 25% of the voting rights. If you do not, you must have at least 10% of the voting rights, and, together with your family, have at least 75% of the voting rights.

You must also have been a working director of the family company for the 10 year ownership period, and for not less than five years of that 10 year period, you must have been a full-time working director, i.e., required to devote substantially the whole of your time to the company in a managerial or technical capacity.

(c) Land, machinery and plant held by you for not less than 10 years ending on the disposal date, which:

(i) was used throughout the 10 years period by the family company, and

(ii) is disposed of at the same time to the person who is buying the shares in the family company.

(d) Let farm land provided:

(i) it is let under the EU Early Retirement from Farming Scheme, and immediately prior to such letting, it was owned and farmed by the lessor for at least 10 years,

(ii) it is compulsorily acquired, is let during the 5 years preceding the disposal, and prior to such letting, was owned and farmed by the lessor for at least 10 years,

(iii) the disposal is to a child and it was farmed prior to letting.

(iv) the land was let for a minimum of 5 years in the 25 year period ending with the disposal of which must be before 31 December 2006.

When calculating the 10 year ownership period for the qualifying assets, you may include:

(a) your spouse’s ownership period,

(b) in the case of assets that qualified for rollover relief, the ownership period of the old assets,

(c) in the case of assets that qualified for relief on transfer of a business to a company, the pre-corporate ownership period, and this period also counts as time being a full-time director,

(d) in the case of a spouse who has died, the deceased spouse’s pre-death period as a full-time working director,

as a period for which you were a full-time working director.

You can also claim retirement relief in respect of compensation proceeds from decommissioning of fishing vessels. You must have owned and used the vessel for six years prior to the payment date, and you must be at least 45 years of age at the time of the payment.

If you are a farmer in a farming partnership, and the partnership dissolves, you are not caught for CGT on disposal of a partnership asset owned and used by the partnership for 10 years prior to the dissolution.