CGT relief extension for SME owners could cost exchequer €84m

Entrepreneur relief sees capital gains tax charged at 10% on profits from the disposal of business assets up to a lifetime limit of €1m

Daniel Mackey and Peter Coppinger of Teamwork.com, overall winners of the EY Entrepreneur of the Year Awards in 2018. Photograph: Dave Meehan

Daniel Mackey and Peter Coppinger of Teamwork.com, overall winners of the EY Entrepreneur of the Year Awards in 2018. Photograph: Dave Meehan

 

Increasing the lifetime limit on the relief offered to entrepreneurs selling their businesses to €15 million could cost the exchequer €84 million in tax revenues, according to a strategy paper drawn up by the Department of Finance.

The relief was introduced in the 2015 Finance Act and means capital gains tax is charged at a discounted 10 per cent rate on any profits from the disposal of certain business assets up to a lifetime limit of €1 million.

There have been continuing calls over recent years for the limit to be raised.

As part of a recent consultation process, submissions called for the lifetime limit to be raised to €5 million, €10 million or €15 million, either immediately or on a phased basis.

It was suggested that this would bring the Republic into line with the UK, where a £10 million lifetime limit applies, and that it would generate “greater activity in the economy and greater sales of assets”.

The department’s strategy paper said there was “limited evidence” that there would be greater economic activity or “business benefits” as a result of increasing the relief.

The cost of the current relief was €20.4 million in 2016, when 412 claims were made, and €81.2 million in 2017, when 873 claims were lodged. Given that this is a demand-led scheme, the paper states that the outturn could be higher than the €84 million cost in lost tax estimated by Revenue.

Another suggestion is to narrow the base of activity that would qualify for the relief but the paper said this was “likely to raise state aid issues” with the EU.

It also states that any changes should “minimise the extension of the relief to pure passive investment, such as investment in property, since it is not evident that such investment requires support in the form of a reduced rate of CGT”.

The paper said consideration of possible changes to the relief need to await the final report of the consultation process. Changing the lifetime limit would be contingent on decisions around Budget 2020 and “available resources”, it added. It was important than changes to the relief do not “undermine the fundamental operation of CGT”.

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