14 Oct 2020 | 11.22 am
Budget 2021: Entrepreneur Relief
Changes will provide more flexibility for working entrepreneurs, says KPMG's Camilla Cullinane
14 Oct 2020 | 11.22 am
KPMG partner Camilla Cullinane explains the proposed changes to the holding period for Entrepreneur Relief
Under this relief, entrepreneurs pay a special CGT rate of 10% when they dispose of qualifying business assets. The full rate of 33% then applies to gains above the lifetime limit of €1 million.
In respect of a sale of shares in a qualifying company, the change proposed by the minister would see a taxpayer meet the required holding period where they owned 5% or more of the shares of that company for at least three continuous years at any time. Previously, it was necessary to own 5% or more for a continuous three-year period in the five-year period falling immediately before the disposal.
The change will provide more flexibility for working entrepreneurs to qualify for the relief, as they can now qualify even where their shareholding has fallen below 5% in the years leading up to the disposal.
For example, an entrepreneur who has owned 5% of a company for a continuous three-year period can now dispose of a 2% interest, continue to own the remaining 3% for a further four years, and then dispose of the remaining 3%, with both sales qualifying for Entrepreneur Relief. The second sale of 3% would not have qualified previously. This measure will come into effect 1 January 2021.
It will still be necessary for the entrepreneur to be an employee or director of the company who has spent at least 50% of their working time for three continuous years out of the five years falling immediately before the disposal, in service to the company in a managerial or technical capacity.
The retention of Entrepreneur Relief and the change introduced by the minister should be welcomed. However, it is disappointing that that the Government has decided to retain the current rate of CGT whilst omitting to introduce any significant improvements for entrepreneurs and SMEs.
It is hoped that the new Commission on Taxation might produce further initiatives to help stimulate this vital segment of the economy and that such initiatives will be taken up by Government in a meaningful way.
The flat rate VAT addition that is available to unregistered farmers will increase from 5.4% to 5.6% from 1 January 2021. The flat rate addition compensates unregistered farmers for VAT on their farming costs. The minister also announced a number of stamp duty measures to support the agricultural sector.
Stamp duty consanguinity relief is designed to facilitate and encourage intergenerational farm transfers. This relief reduces the stamp duty rate from 7.5% to 1% on the transfer of agricultural land to close relatives, provided certain conditions are met. This relief was due to expire on 31 December 2020, but it will be extended for a further three years until the end of 2023.
Farm consolidation relief
Stamp duty farm consolidation relief provides for a reduced rate of stamp duty of 1% (compared to 7.5%) where a farmer disposes of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm.
Stamp duty at 1% is applied to the excess of the value of the land acquired over the value of the land disposed of, where the acquisition and disposal take place within a 24 month period.
The relief is designed to encourage the consolidation of farm holdings in order to improve the operational efficiency and viability of farms for a period of five years from the date of the transfer.
This farm consolidation relief was due to expire on 31 December 2020. However, the minister announced that it will be extended for a further two years until the end of 2022. This coincides with the expiration date of the equivalent CGT farm consolidation relief.