Entrepreneurship

Key measures

Entrepreneurs and the businesses they invest in will be impacted by a number of key measures announced in Budget 2024.

A reduced capital gains tax rate has been introduced for disposals made by “Angel Investors” where certain criteria are met. The relief will apply to gains up twice the value of the initial investment. One of the key criteria for this relief to apply is that the investment must be held for a period of three years in order for the investment to be considered a “Qualifying Investment”.

Retirement relief is a form of relief from capital gains tax which arises on the disposal of certain business assets and shares in certain companies. For an individual who has attained 55 years of age and satisfies the conditions applicable to the relief, there is no monetary limit on the amount of consideration that can qualify for the relief in relation to disposals made prior to 1 January 2014. However, for disposals made since 1 January 2014, where the individual making the disposal is 66 years or more and the market value of the qualifying assets is over €3million, relief is limited to an amount of €3million. This age limit will now be increased from 66 years old to 70 years old with effect from 2025.

The Minister also announced that a review of Revised Entrepreneur Relief is underway which provides for a reduced rate of capital gains tax in respect of gains on disposal of shares in companies where certain criteria are met.

Amendments to the Research and Development tax credit have been announced. The amount of the credit available has been increased from 25% of qualifying expenditure to 30% of qualifying expenditure. The amount of tax repayable in the first year has been increased from €25,000 to €50,000.

The Key Employee Engagement Programme (“KEEP”) which was extended in the previous budget will be amended to incorporate various enhancements which were subject to EU State Aid approval. These enhancements will now be introduced and in particular the lifetime company threshold of €3m will be raised to €6m.

An increase in the VAT registration threshold of €37,500 for businesses that supply services only and €75,000 for businesses that supply goods only to €40,000 and €80,000 respectively.

Who will be affected?

The introduction of the reduced capital gains tax rate for Angel Investors is a positive measure and should open the door to much needed investment in the indigenous sector which will help the sector grow and foster entrepreneurship in Ireland.

Staff recruitment and retention is proving to be a continuing concern for indigenous businesses. Amendments to the KEEP Scheme are welcome from this vista.

Enhancements to the repayable element of the R&D tax credit scheme should enable Irish businesses access cash refunds in a more efficient manner.

When? What to do now?

The changes to the research and development tax credit, KEEP Scheme and VAT registration thresholds will take effect from 2024. The increase in the age limit for Retirement Relief will apply with effect from 2025 onwards. The reduced CGT rate for Angel Investors will take effect from 2024 but the first year in which this relief may be availed of will be 2027 on the basis that the investment must be held for a period of three years prior to its disposal.

Our view

Similar to the focus of the prior year Budget it is clear that the primary focus of Budget 2024 is to tackle the continually rising cost of living crises in Ireland. As set out in our pre-budget submission, it is imperative that Ireland provides an alternative entrepreneurial landscape for growth, including a tax system that incentivises innovation, encourages longevity and does not punish failure.

Without a doubt, the measures included in Budget 2024 will impact Irish Indigenous business in a favourable manner, the amendments to the R&D tax credit and the increase in VAT registration thresholds will be favourable from a cash flow perspective.

The amendments to the KEEP Scheme will aid the retention of key talent.

The amendment to the age threshold to a maximum age of 70 years old for retirement relief is welcome, but it does not go far enough. The cap on the availability of retirement relief represents a hinderance to the transfer of shares in a family-owned business during the lifetime of entrepreneur. In many cases, this may delay the transfer of shares or business/farming assets to passing as an inheritance rather than during the lifetime of the entrepreneur. This is certainly a point which family businesses will need to be cognisant of.

We welcome the review of Revised Entrepreneur Relief. However, other measures which were included in the Deloitte pre Budget submission and which could have made an immediate impact include tapered capital gains tax relief to encourage entrepreneurs to stay the course and scale business internationally or the introduction of a lower rate of tax of 20% that could be provided to entrepreneurs subject to an annual dividend cap of €100,000.

Key Measures from Finance (No.2) Bill 2023

• The changes to retirement relief from Capital Gains Tax (“CGT”) are broadly in line with the announcements made by the Minister on Budget day (i.e. the extension of the upper age limit from 66 to 70 years old and the introduction of a cap of €10m on assets transferred to children where the disponer is aged between 55 and 70). The changes to the age limit and the cap are to come into effect from 1 January 2025 but with some points for consideration around aggregation of previous qualifying disposals for those aged 66 but less than 70 currently. The Bill also puts on a statutory basis that a claim for retirement relief must be included in a tax return filed by the individual. We would strongly recommend that individuals within this age bracket seek professional advice in relation the impact of the revised legislation in the context of their own personal circumstances.
• The Bill also includes an amendment around the percentage holding of shares in subsidiaries in the context of revised entrepreneurial relief. The purpose of the amendment appears to be to remove any ambiguity around the meaning of a qualifying subsidiary for the purposes of the relief. The changes proposed in the Bill means that all subsidiaries must be held by at least 51% by a holding company.
• No additional information has been provided in the Bill in relation to the proposed relief from CGT for Angel Investors announced in the Budget. The proposed relief envisages a reduced rate of CGT for disposals of certain investments by “Angel Investors” – for a rate of 16% in companies and 18% in partnerships. We understand that legislation will be introduced at Committee Stage and accordingly, we will have to wait until this stage to see what constitutes an “innovative start-up small and medium enterprise” for the purposes of the relief and the practicalities associated with the operation of same.
• The Bill introduces certain technical amendments to the operation of the clawback provisions for Business Property Relief from Capital Acquisitions Tax (“CAT”) and Agricultural Relief from CAT.
• Finally the Bill proposes a number of changes to the Employment and Investment Incentive (“EII”) Scheme. These changes are broadly in response to the revision of the EU General Block Exemption Regulation. The definition of eligible shares has been updated. An increase in the lifetime limit in the amount of risk finance investment that can be raised to €16.5 million is also introduced, together with an increase in the limit on which an investor can get relief on an individual basis to €500,000. The period of investment has also been standardised to 4 years. It is worth noting that as indicated in the Minister’s Budget speech, a further review of EIIS will take place early next year with a view to simplifying it further.