This article is written for new business owners that are looking for a high-level overview of Capital Gains Tax as it applies to new companies.
What is Capital Gains Tax and How Does it Affect New Businesses in Ireland? Capital gains tax (CGT) in Ireland is a tax on the profit made when you sell an asset that has increased in value.
For new businesses, understanding CGT is essential as it affects your tax liability when selling business assets or shares. CGT is a tax separate from your regular income tax and has to be carefully planned to manage effectively.
Irish capital gains tax applies to the sale of most assets, with some key exemptions. The CGT rate currently stands at 33%.
If you sell your company, without proper planning you will end up paying 33% of that cash to Revenue.
Understanding Capital Gains Tax in Ireland and Its Core Principles The core principle of CGT is that it taxes the gain , not the entire amount received.
The gain is usually the difference between the price you paid for the asset and the price received when disposing of the asset.
Irish Capital Gains Tax Example: Company Shares
Description
Amount (€)
Issue Price (10,000 shares @ €0.01 par value each)€100
Sale Price (10,000 shares @ €25 each)€250,000
Capital Gain (Sale Price - Issue Price)€249,900
Annual CGT Exemption (2024/2025)€1,270
Taxable Gain (€249,900 - €1,270)€248,630
CGT Rate 33%
CGT Due (€248,630 × 33%)€82,048
Key Point: You only pay CGT on the gain of €249,900, not the full sale proceeds of €250,000. After the annual exemption, the taxable gain is €248,630, resulting in CGT of €82,048.
Irish tax legislation provides various reliefs and exemptions to reduce this burden.
When determining your chargeable gain, you must account for:
The original cost of the asset Allowable expenses related to the acquisition and disposal Any enhancements that increased the asset's value When Do New Businesses Need to Pay Capital Gains Tax? Identifying Disposal Events That Trigger CGT Liability You'll need to pay CGT if you dispose of business assets at a profit . A disposal occurs when you:
Sell a business asset Give away an asset Exchange an asset Receive compensation for an asset (e.g., insurance) Even if you transfer business assets at less than market value, CGT may still apply based on the market value rather than the actual price paid.
Real-World Examples of CGT for New Businesses Both companies and their shareholders may face CGT liability in different situations:
Example 1: Shareholder Sells Shares If you buy shares in your startup at €1 per share (i.e. the initial nominal value of the shares that is set at incorporation) and later sell them at €5 per share, you'll pay CGT on the €4 gain per share. This is a personal gain, so you as an individual (not the company) will pay the CGT.
This would also apply if you gave some shares to an early employee - if they made a gain on the value of the shares, then that gain will be hit with a 33% tax (save for some exceptions).
Example 2: Company Sells Property Your business buys a premises for €200,000. Five years later, you sell it for €300,000. The company will pay CGT on the €100,000 gain (less any allowable expenses).
Example 3: Investment in Other Assets If your business invests in crypto assets worth €10,000 that grow to €30,000, when you dispose of them, your business faces CGT on the €20,000 gain.
It's vital to understand that CGT can apply both to the company itself when it disposes of assets at a profit, and to individual shareholders when they sell their shares at a gain. These are separate tax events with separate CGT liabilities.
Important Tax Year Deadlines for CGT Payments (15 December and Beyond) For CGT payments, timing is critical:
CGT due on disposals between 1 January and 30 November must be paid by 15 December of the same tax year CGT due on disposals in December must be paid by 31 January of the following year The deadline is 31 January for filing your complete CGT return Missing these deadlines can result in interest and penalties, so careful planning of disposal timing can help manage cash flow.
What Capital Gains Tax Reliefs and Exemptions Are Available for New Businesses? Exploring Retirement Relief and Business Asset Relief Options Business asset relief (also known as Entrepreneur Relief) can reduce the rate of tax to 10% on qualifying disposals up to a lifetime limit of €1 million. This is particularly valuable for new business owners planning eventual exits.
For older business owners, retirement relief can provide a full exemption up to a lifetime limit of €1 million if selling to someone other than a child, or without limit if transferring to a child.
Using Personal Holding Companies to Delay CGT One tool that can help defer CGT on a large business exit is a personal holding company . When you sell your business shares, instead of selling directly (which triggers an immediate CGT liability), you can:
Transfer your business shares to a holding company in exchange for shares in that holding company The holding company then sells the business shares This structure may allow you to defer the CGT that would otherwise be due immediately. The gain is effectively "locked" in the holding company until you eventually dispose of your holding company shares.
When combined with Entrepreneur Relief, this approach can be very tax-efficient for founders planning a significant exit. You just need to ensure the structure meets all Revenue requirements to qualify for the relief on capital gains.
Principal Private Residence and Assets Exempt from CGT Your main residence is typically exempt from CGT under principal private residence relief. For mixed-use properties where part serves as business premises, partial relief may apply.
Other assets exempt from capital gains tax include certain government securities and life insurance policies (in most cases).
How to File a Capital Gains Tax Return for Your New Business Step-by-Step Guide to Completing Your Gains Tax Return To file your gains tax return:
Complete the CGT sections of your Form 11 (for self-assessed taxpayers) Include details of each disposal separately Calculate your net gain after reliefs and exemptions Common Mistakes to Avoid When Reporting Capital Gains When filing, avoid common errors like:
Forgetting to include acquisition costs Overlooking qualifying expenditure that could reduce your gain Failing to claim available reliefs Missing payment deadlines How to Calculate Capital Gains Tax for Business Assets Determining Your Chargeable Gain After Allowances Your chargeable gain is calculated by:
Taking the disposal proceeds Deducting the original cost and acquisition expenses Deducting enhancement expenditure Deducting disposal costs Applying any reliefs or exemptions Deducting the annual exemption of €1,270 ItemDescriptionEffect on GainDisposal proceedsAmount received when asset is soldIncreases gainOriginal costAmount paid for the assetDecreases gainEnhancement costsImprovements to the assetDecreases gainDisposal costsLegal fees, advertising, etc.Decreases gain
Understanding the Current Rate of Capital Gains Tax in Ireland The current rate of capital gains tax in Ireland is 33%. However, certain disposals of business assets may qualify for the reduced 10% rate under Entrepreneur Relief.
What Happens When You Dispose of Business Assets? Record-Keeping Requirements for Business Asset Disposals Maintain detailed records of:
Original purchase documents and dates Costs of improvements or enhancements Disposal documents and dates Calculations of gains or losses These records should be kept for at least six years after the disposal date, as Revenue may request them during an audit.
