Podcast116: What Is Entrepreneur Relief & Is It Any Use To Me??

Welcome back to Ireland's award winning & independent financial planning blog & podcast, where we are on a mission to share ideas and information that hopefully helps you make decisions that delivers long term results for you. Thanks for the lovely reaction to last weeks' episode, I certainly enjoyed sharing the story! This weeks' topic is kinda closely related to the oul' lizard-brain and relates to entrepreneurship!

We are not tax experts but it has been asked of us a few times recently so this week we will share a wee bit of info about how 'entrepreneurs' can stand to benefit from a pretty significant chunk of relief......of the financial sort.

A Short Story:

Maria Dalmation set up a dog grooming company back in 2010, called 'I Shitzu-Not' Limited (I don't think I'll ever make it in advertising!). Anyway, she had a steady start, and then when she won a national dog-grooming title for her grooming skills her business took off. For the 4 years from 2013 to 2017 she had revenues each year in the region of €200,000, business expenses including wages of €100,000 meaning she had profits of €100,000 per year. She did pay corporation tax at 12.5% on the money in the business each year however the company had cash of €550,000 in it's bank account at the end of 2017.

Maria Dalmation had an epiphany in January of this year, she wanted to leave the grooming business, it was time for a new adventure, to pursue her love of discovering and documenting Mongolian Cave Art (please understand I had to make this really random so as to avoid the chances of anyone coming forward to claim I was talking about them!). So she sought to leave it all behind, and sell the business to a colleague that had been working with her for the past few years.

Maria's business at that stage was worth €750,000 (including cash and goodwill), she sells it for €750,000 and pays a measly €75,000 Capital Gains Tax on that sale of her shares in the business. She pocketed, perfectly legitimately and appropriately, €675,000 of the €750,000 sale price. To put that in context had she sold an investment, property or other asset other than a limited company on which she had the same gains she would have paid Capital Gains Tax at 33%, equating to €247,000, meaning she would have pocketed €500,000. A simple thing now called 'Entrepreneur Relief' has reduced her tax liability on disposal of her business by €175,000.

Continued.........

Paddy Delaney

QFA | RPA | APA | Coach