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Entrepreneur relief v retirement relief | Taxworld
The main rate of capital gains tax (CGT) in Ireland is 33%. There are two methods to alleviate the tax burden on productive business assets, primarily to encourage enterprise, facilitate efficient succession, and reward long-term economic contribution: Entrepreneur relief (ER) and retirement relief (RR) .
Entrepreneur relief (TCA 1997 s 597AA) reduces the tax rate to 10%.
In contrast, retirement relief (TCA 1997 ss 598-599) reduces the tax rate to nil.
The distinction between these reliefs has never been more critical than during 2025–2026.
Finance Act 2024 and Finance (No. 2) Act 2023 have introduced the most significant structural changes to retirement relief in decades, regarding the transfer of high-value assets to the next generation. There is now a €10m cap on transfers to children, coupled with a complex deferral and abatement mechanism requiring a 12-year retention period.
Simultaneously, the lifetime limit for entrepreneur relief increases from €1m to €1.5m effective 1 January 2026.
2. Retirement relief
If a disposal qualifies, the tax is reduced to zero, rather than 10%. Historically, this relief was uncapped for transfers within the family for individuals aged between 55 and 65. A parent could transfer a business worth €50m to a child without triggering CGT.
Finance (No. 2) Act 2023 introduced a €10m cap on relief for transfers to children, originally intended to operate as a hard limit. Following extensive feedback from the business community regarding the potential stifling of genuine family successions, the Finance Act 2024 introduced a deferral mechanism to soften this cap.
From 1 January 2025, the unlimited exemption is replaced by a conditional deferral system, contingent on the next generation retaining the assets for 12 years.
3. Entrepreneur relief
3.1 Qualifying business
At the heart of Section 597AA is the definition of a "qualifying business." A qualifying business is any business other than the holding of securities or other assets as investments, the holding of development land, or the development or letting of land.
This definition is strictly interpreted by Revenue. For a company to qualify, its business must consist "wholly or mainly" of carrying on a qualifying trade. "Wholly or mainly" is generally interpreted as exceeding 50% in terms of asset value, turnover, and profit distribution. However, the presence of significant investment assets within a trading company can jeopardize the relief.
The holding company nuance: The relief extends to shares in a "holding company" of a "qualifying group." A holding company is defined as a company whose business consists wholly or mainly of holding shares of all companies which are its 51% subsidiaries. A "qualifying group" exists where the business of each 51% subsidiary (excluding the holding company) consists wholly or mainly of carrying on a qualifying business.
Trap: This creates a distinct vulnerability for groups with dormant subsidiaries. If a group contains a dormant subsidiary, or a subsidiary that holds investment assets, it may fail the "qualifying group" test because each subsidiary must be a qualifying business. Unlike other tax areas where the group is looked at holistically, s 597AA requires a compliance check for every entity in the structure.
3.2 The "5-3-3" qualifying tests
To claim entrepreneur relief on a share disposal, an individual must satisfy three specific tests simultaneously, commonly referred to as the "5-3-3" rule:
5% ownership: The individual must own not less than 5% of the ordinary share capital of the company.
3-year continuous ownership: The shares must have been owned for a continuous period of 3 years.
3-year working requirement: The individual must have worked in the business for a continuous period of 3 years in the 5 years prior to disposal.
3.2.1 The "continuous period" amendment (2021)
Before 1 January 2021, the legislation required that the 5% shareholding be held for a continuous period of 3 years in the 5 years immediately prior to the disposal. This created a "trap" for founders who might have been diluted below 5% in a Series B or Series C funding round more than two years before their exit.
Finance Act 2020 section 24 amended this requirement decoupling the ownership period from the immediate pre-disposal window.
For disposals on or after 1 January 2021, the requirement is simply that the shares were held for a continuous period of 3 years at any time prior to the disposal. This allows a founder who held 20% of a company from 2015 to 2019, and was subsequently diluted to 2% in 2020, to still claim the relief on a disposal in 2025, provided they continued to meet the working requirement.
3.2.2 The "managerial or technical" capacity
The individual must have been a director or employee who was required to spend not less than 50% of their working time in the service of the company in a managerial or technical capacity.
This definition differs significantly from the "working director" definition used in retirement relief (see below).
Managerial: Implies decision-making authority and control over business operations.
Technical: Implies specialized knowledge essential to the business (e.g., a lead software architect or a head engineer).
50% time: This accommodates individuals who may have other business interests, serial entrepreneurs, or those transitioning to a part-time role. It does not require "full-time" devotion, only 50% of the individual's working time.
3.3 The sole trader incorporation trap
One of the most significant technical pitfalls of entrepreneur relief concerns the incorporation of a sole trade. Under section 597AA, the periods of ownership and work undertaken as a sole trader cannot be aggregated with the periods of ownership and work in the new company.
When a sole trader incorporates, legally they are disposing of their trade assets to a new legal entity (the company) in exchange for shares. For the purposes of ER, the "clock" resets to zero. The individual must hold the shares in the new company for a fresh 3-year period and work in the new company for a fresh 3-year period before they qualify for the relief on a future disposal of those shares.
This contrasts sharply with retirement relief, which allows for the aggregation of these periods. This creates a hazardous scenario for business owners who incorporate shortly before an exit, inadvertently disqualifying themselves from the 10% rate for at least three years.
3.4 Higher lifetime limit
Finance Act 2025 announcement outlined an increase in the lifetime limit to €1.5m, effective 1 January 2026. This effectively increases the maximum potential tax saving from €230,000 to €345,000 (calculated as €1.5m x (33% - 10%)).
While welcome, this change introduces a "lock-in" effect for 2025. An entrepreneur with a gain of €2m who sells on 31 December 2025 will pay 10% on the first €1m and 33% on the remaining €1m. If they delay the sale by 24 hours to 1 January 2026, they pay 10% on the first €1.5m and 33% on the remaining €0.5m, saving an additional €115,000 in tax. This creates a clear incentive to defer disposals where possible.
4. Retirement relief
4.1 Tenure
Retirement Relief is built on the concept of rewarding longevity. Unlike the 3-year window for entrepreneur relief, retirement relief generally requires a 10-year association with the asset. It applies to "qualifying assets," which include chargeable business assets (tangible assets used in a trade) and shares in a family company.
4.2 The "working director" requirement
For share disposals, the qualifying condition is onerous. The individual must be a "working director" for a period of 10 years ending on the date of disposal, and for at least 5 of those years, they must have been a "full-time working director".
Full-Time working director: The Revenue Manual defines a "full-time working director" as a director who is required to devote substantially the whole of his or her time to the service of the company in a managerial or technical capacity.
"Substantially the whole" is a much higher bar than the "50%" required for ER. It effectively precludes the individual from having significant other employments or active business roles.
Crucially, the individual must be a director. An employee, no matter how senior or full-time, does not qualify for Retirement Relief on shares. This is a key divergence from ER, which allows employees to qualify.
4.3 Inclusion of pre-incorporation periods
In direct contrast to entrepreneur relief, retirement relief allows an individual to count the time they spent owning and operating the business as a sole trader towards the 10-year requirement for the company shares. This prevents the "incorporation trap" and ensures that long-standing business owners are not penalized for modernising their legal structure later in the business lifecycle.
4.4 Age thresholds and relief limits
Retirement relief operates through a tiered system based on the age of the disposer. Finance Act 2024 has adjusted these tiers to reflect longer working lives.
Age
Disposal to third party (s 598)
Disposal to child (s 599)
55 - 69 (New 2025)
Exemption limit: €750,000
Cap: €10,000,000 (subject to clawback)
70+ (New 2025)
Exemption limit: €500,000
Cap: €3,000,000
Prior to 1 January 2025, the upper age bracket commenced at 66. The shift to 70 aligns the tax system with broader state pension policies.
4.5 Section 598: Disposals to third parties
For disposals to third parties, the relief is an exemption up to the threshold (€750k/€500k). If the proceeds exceed the threshold, "marginal relief" applies. Marginal relief limits the tax payable to 50% of the difference between the sale proceeds and the threshold.
Example
An individual aged 60 sells for €800,000.
CGT: €800k * 33% = €264,000.
Marginal relief: (€800k - €750k) * 50% = €25,000.
CGT payable: €25,000.
This mechanism prevents a cliff-edge where selling for €751,000 would otherwise trigger a massive tax bill compared to selling for €750,000.
5. The €10m cap and deferral
This change ends the era of unlimited tax-free transfers for business owners aged 55-65 (now 55-69).
5.1 How the €10m cap works
From 1 January 2025, if an individual aged between 55 and 69 transfers qualifying assets to a child, the relief is capped at a market value of €10m. Any value transferred in excess of €10m is theoretically chargeable to CGT.
This measure was introduced to ensure that ultra-high-net-worth transfers contribute to the exchequer, while still protecting the vast majority of SME transfers. However, given asset inflation and the valuation of land and intellectual property, many family businesses exceed this €10m threshold, creating a liquidity crisis where the tax bill could force the sale of the business.
5.2 The deferral solution
To address the liquidity concern, the government introduced a "deferral option."
Where the transfer value exceeds €10m, the parent can elect to defer the CGT arising on the excess (or the full gain, depending on the precise application of the relief cap). This deferral effectively pauses the tax liability at the point of transfer.
5.3 The 12-year abatement and clawback
The deferral is not a permanent exemption initially; it is conditional. The condition is that the child must retain the assets for a period of 12 years from the date of transfer.
5.3.1 Abatement (success scenario)
If the child retains the assets for the full 12-year period, the deferred CGT is abated. This means the liability is extinguished, and the transfer becomes retrospectively tax-free (assuming the initial €10m was covered by s 599).
5.3.2 Clawback (disposal scenario)
If the child disposes of the assets within the 12-year period, the deferral is revoked. A "clawback" occurs.
Liability: The child becomes liable for the parent's deferred CGT.
Double charge: The child is also liable for any CGT arising on their own gain from the disposal (calculated from their acquisition cost at the time of transfer).
Anti-avoidance: A new general anti-avoidance provision ensures that the relief/deferral is only available for transfers made for "bona fide commercial reasons" and not for tax avoidance purposes.
This creates a significant "lock-in" for the next generation. For 12 years, the ability to sell, merge, or restructure the business is severely constrained by the threat of the parent's crystallised tax liability.
5.4 Previous clawback rules
Under the pre-2025 rules, a "clawback" period of 6 years applied to section 599 transfers. If the child sold within 6 years, the parent's relief was withdrawn, and the parent (not the child) was assessed.
The new rules shift the liability to the child and extend the period to 12 years for transfers over €10m. This shift in liability to the child simplifies collection for Revenue, as the child is the one holding the liquid proceeds of the sale.
6. Comparison
The following comparative table and analysis highlight the operational divergences between the two reliefs.
6.1 Comparison table
Feature
Entrepreneur relief (ER)
Retirement relief (RR)
Tax consequence
Rate reduction (10% rate)
Exemption (0% tax)
Lifetime limit
€1m (rising to €1.5m in 2026)
s 598: €750k / €500k s.599: €10m / €3m (subject to clawback)
Minimum age
None
55 years
Ownership tenure<
3 continuous years (at any time)
10 consecutive years ending on disposal
Working requirement
50% time (Managerial/Technical)
"Substantially the whole" (Full-time director)
Eligible roles
Director OR employee
Director ONLY (for share disposals)
Aggregation
No (Sole trader time lost on incorporation)
Yes (Sole trader time counts)
Clawback risk
None (Tax is paid upfront)
High (6 years standard / 12 years for >€10m transfers)
Holding company
Subsidiary-by-subsidiary test (51%)
Group-wide "trading group" test
6.2 Divergence in "working" definitions
The distinction between "Managerial/Technical" (ER) and "Working Director" (RR) is a frequent source of confusion.
ER flexibility: ER is designed to accommodate the modern, fluid executive. A founder who steps back to a 3-day week (50% time) to focus on strategy (Managerial) still qualifies. An early employee who is a key coder (Technical) but never joins the Board still qualifies.
RR rigidity: RR is designed for the owner-manager who is synonymous with the business. They must be a Director (statutory officer). They must be full-time (substantially whole time). This often excludes spouses who work part-time in the business or technical staff who hold equity but not directorships.
6.3 Divergence in asset classes
While both require trading assets, ER has a nuanced "bad asset" list (development land, investments). RR uses a "chargeable business asset" definition.
Goodwill: ER applies to goodwill disposed of by a sole trader, but specifically excludes goodwill disposed of to a connected company (anti-avoidance).
Shares: ER requires a 5% holding. RR requires a "family company" status (25% voting rights, or 10% if family owns 75%). This makes ER the only option for minority shareholders (e.g., 5-24% holders) who are not part of the controlling family.
7. Interaction of the reliefs
For entrepreneurs exiting a business, the optimal tax strategy often involves "stacking" both reliefs to minimise the Effective Tax Rate (ETR) . The legislation permits both reliefs to apply to the same disposal, provided the specific conditions for each are met.
7.1 Priority of reliefs
Revenue guidance confirms that Retirement Relief takes precedence because it is an exemption.
Apply retirement relief first: Exempt the gain up to the relevant threshold (e.g., €750,000).
Apply entrepreneur relief second: Apply the 10% rate to the balance of the chargeable gain.
7.2 Calculating the "stack"
Consider an entrepreneur (Age 60) selling a business for €1,750,000. They qualify for both reliefs.
Proceeds: €1,750,000.
RR Threshold: €750,000.
Generally, s 598 is an exemption limit. If proceeds exceed €750k, the full amount is chargeable, subject to marginal relief.
In a stacking scenario, the interaction is complex. If marginal relief (50% tax on excess) is more expensive than ER, the taxpayer effectively bypasses the marginal relief and claims ER on the whole amount?
The standard practice is that ER applies to the chargeable gain. If RR (Marginal) is not claimed because it's less beneficial, the taxpayer claims ER on the full €1.75m.
However, if the disposal can be structured or split, or if the marginal relief calculation is beneficial for the first tranche, it is used.
Trap: Unlike s 599 (child) , s 598 is a cliff-edge relief. You don't get the first €750k tax-free if you sell for €2m. You get marginal relief or nothing. Therefore, for large exits (>€1m), ER usually supersedes RR entirely unless the marginal relief calculation yields a lower tax than 10%.
Conclusion: "Stacking" is most effective when proceeds are close to the €750k limit. Once proceeds exceed approx. €1m, ER becomes the dominant relief.
7.3 Interaction with angel investor relief
The Finance Act 2024 enhanced angel investor relief, offering a 16% rate (or 18% via partnerships) on gains up to €10m.
This relief targets third-party investors, whereas ER targets owner-managers (employees/directors).
An individual cannot claim both ER and Angel Investor Relief on the same portion of a gain. They must elect for the most favorable one.
Tip: If an individual qualifies for both (e.g., a founder who stepped back to be a passive investor but kept 5%), ER is superior (10% rate) up to €1m. For gains above €1m, angel investor relief (16%) is vastly superior to the standard rate (33%).
A sophisticated strategy might involve claiming ER on the first €1m and angel relief on the balance, subject to legislative permission on splitting the gain types (which is complex and restrictively interpreted).
8. Examples
Example 1: The "incorporation trap" (ER failure)
Mary operated a pharmacy as a sole trader for 20 years. She incorporated "Mary Pharma Ltd" in 2023. She sells the shares in 2025 for €2,000,000. She is 50 years old.
Retirement relief analysis:
Age 50: Fail (Must be 55).
ER analysis:
She owns 100% shares.
Has she held shares for 3 years? No (Incorporated 2023, Sold 2025 = 2 years).
Can she count the 20 years as a sole trader? No.
Result: 33% tax.
Tax: €2,000,000 * 33% = €660,000.
Alternative strategy: If Mary had delayed the sale to 2026 (reaching 3 years of share ownership), she would claim ER.
Patrick (Age 68) transfers his engineering firm to his son David.
Value: €15,000,000.
Date: 1 March 2025.
Retirement relief (s 599):
Patrick is <70. Cap is €10m.
Transfer exceeds cap by €5m.
Option 1: Pay Tax. Patrick pays 33% on €5m = €1.65m. (Assumes relief covers first €10m).
Option 2: Deferral. Patrick claims deferral. Tax paid in 2025 = €0.
The risk:
In 2032 (7 years later), David sells the business for €20m.
Clawback: The 12-year period is not met.
David's liability:
Patrick's deferred tax: €1.65m.
David's own CGT: Gain of €5m (Sold €20m, Base Cost €15m). Tax = €1.65m.
Total tax: €3.3m.
Example 3: The "mature exit"
Brenda (Age 60) sells her business for €750,000.
Reliefs:
She qualifies for RR (10 years working director).
She qualifies for ER (3 years ownership/working).
Optimal choice:
She claims retirement relief (s 598).
Proceeds €750,000 are fully exempt. Tax = €0.
ER status: Her €1m lifetime limit for ER is untouched because there was no chargeable gain.
Future Benefit: Brenda starts a new business. Three years later, she sells it for €1m. She can now use her ER limit to pay just 10% on that second exit.
9. Conclusion
Retirement relief, conversely, has transitioned from an open-ended succession benefit to a regulated, capped, and conditional mechanism. The introduction of the €10m cap and the 12-year deferral rule imposes a heavy compliance burden and "lock-in" risk on the next generation of family business owners. The "working director" requirement remains the bedrock of this relief, prioritizing long-term operational control over passive ownership.
For practitioners, the key takeaway is the necessity of long-horizon planning. The 10-year clock for retirement relief, the 3-year clock for ER, and the 12-year clock for the new deferral mechanism mean that tax efficiency is no longer achieved at the point of disposal, but through the careful structuring of the business years in advance.
Entrepreneur relief v retirement relief
Table of contents
1. Introduction
The main rate of capital gains tax (CGT) in Ireland is 33%. There are two methods to alleviate the tax burden on productive business assets, primarily to encourage enterprise, facilitate efficient succession, and reward long-term economic contribution: Entrepreneur relief (ER) and retirement relief (RR) .
Entrepreneur relief (TCA 1997 s 597AA) reduces the tax rate to 10%.
In contrast, retirement relief (TCA 1997 ss 598-599) reduces the tax rate to nil.
The distinction between these reliefs has never been more critical than during 2025–2026.
Finance Act 2024 and Finance (No. 2) Act 2023 have introduced the most significant structural changes to retirement relief in decades, regarding the transfer of high-value assets to the next generation. There is now a €10m cap on transfers to children, coupled with a complex deferral and abatement mechanism requiring a 12-year retention period.
Simultaneously, the lifetime limit for entrepreneur relief increases from €1m to €1.5m effective 1 January 2026.
2. Retirement relief
If a disposal qualifies, the tax is reduced to zero, rather than 10%. Historically, this relief was uncapped for transfers within the family for individuals aged between 55 and 65. A parent could transfer a business worth €50m to a child without triggering CGT.
Finance (No. 2) Act 2023 introduced a €10m cap on relief for transfers to children, originally intended to operate as a hard limit. Following extensive feedback from the business community regarding the potential stifling of genuine family successions, the Finance Act 2024 introduced a deferral mechanism to soften this cap.
From 1 January 2025, the unlimited exemption is replaced by a conditional deferral system, contingent on the next generation retaining the assets for 12 years.
3. Entrepreneur relief
3.1 Qualifying business
At the heart of Section 597AA is the definition of a "qualifying business." A qualifying business is any business other than the holding of securities or other assets as investments, the holding of development land, or the development or letting of land.
This definition is strictly interpreted by Revenue. For a company to qualify, its business must consist "wholly or mainly" of carrying on a qualifying trade. "Wholly or mainly" is generally interpreted as exceeding 50% in terms of asset value, turnover, and profit distribution. However, the presence of significant investment assets within a trading company can jeopardize the relief.
The holding company nuance: The relief extends to shares in a "holding company" of a "qualifying group." A holding company is defined as a company whose business consists wholly or mainly of holding shares of all companies which are its 51% subsidiaries. A "qualifying group" exists where the business of each 51% subsidiary (excluding the holding company) consists wholly or mainly of carrying on a qualifying business.
Trap: This creates a distinct vulnerability for groups with dormant subsidiaries. If a group contains a dormant subsidiary, or a subsidiary that holds investment assets, it may fail the "qualifying group" test because each subsidiary must be a qualifying business. Unlike other tax areas where the group is looked at holistically, s 597AA requires a compliance check for every entity in the structure.
3.2 The "5-3-3" qualifying tests
To claim entrepreneur relief on a share disposal, an individual must satisfy three specific tests simultaneously, commonly referred to as the "5-3-3" rule:
3.2.1 The "continuous period" amendment (2021)
Before 1 January 2021, the legislation required that the 5% shareholding be held for a continuous period of 3 years in the 5 years immediately prior to the disposal. This created a "trap" for founders who might have been diluted below 5% in a Series B or Series C funding round more than two years before their exit.
Finance Act 2020 section 24 amended this requirement decoupling the ownership period from the immediate pre-disposal window.
For disposals on or after 1 January 2021, the requirement is simply that the shares were held for a continuous period of 3 years at any time prior to the disposal. This allows a founder who held 20% of a company from 2015 to 2019, and was subsequently diluted to 2% in 2020, to still claim the relief on a disposal in 2025, provided they continued to meet the working requirement.
3.2.2 The "managerial or technical" capacity
The individual must have been a director or employee who was required to spend not less than 50% of their working time in the service of the company in a managerial or technical capacity.
This definition differs significantly from the "working director" definition used in retirement relief (see below).
3.3 The sole trader incorporation trap
One of the most significant technical pitfalls of entrepreneur relief concerns the incorporation of a sole trade. Under section 597AA, the periods of ownership and work undertaken as a sole trader cannot be aggregated with the periods of ownership and work in the new company.
When a sole trader incorporates, legally they are disposing of their trade assets to a new legal entity (the company) in exchange for shares. For the purposes of ER, the "clock" resets to zero. The individual must hold the shares in the new company for a fresh 3-year period and work in the new company for a fresh 3-year period before they qualify for the relief on a future disposal of those shares.
This contrasts sharply with retirement relief, which allows for the aggregation of these periods. This creates a hazardous scenario for business owners who incorporate shortly before an exit, inadvertently disqualifying themselves from the 10% rate for at least three years.
3.4 Higher lifetime limit
Finance Act 2025 announcement outlined an increase in the lifetime limit to €1.5m, effective 1 January 2026. This effectively increases the maximum potential tax saving from €230,000 to €345,000 (calculated as €1.5m x (33% - 10%)).
While welcome, this change introduces a "lock-in" effect for 2025. An entrepreneur with a gain of €2m who sells on 31 December 2025 will pay 10% on the first €1m and 33% on the remaining €1m. If they delay the sale by 24 hours to 1 January 2026, they pay 10% on the first €1.5m and 33% on the remaining €0.5m, saving an additional €115,000 in tax. This creates a clear incentive to defer disposals where possible.
4. Retirement relief
4.1 Tenure
Retirement Relief is built on the concept of rewarding longevity. Unlike the 3-year window for entrepreneur relief, retirement relief generally requires a 10-year association with the asset. It applies to "qualifying assets," which include chargeable business assets (tangible assets used in a trade) and shares in a family company.
4.2 The "working director" requirement
For share disposals, the qualifying condition is onerous. The individual must be a "working director" for a period of 10 years ending on the date of disposal, and for at least 5 of those years, they must have been a "full-time working director".
Full-Time working director: The Revenue Manual defines a "full-time working director" as a director who is required to devote substantially the whole of his or her time to the service of the company in a managerial or technical capacity.
"Substantially the whole" is a much higher bar than the "50%" required for ER. It effectively precludes the individual from having significant other employments or active business roles.
Crucially, the individual must be a director. An employee, no matter how senior or full-time, does not qualify for Retirement Relief on shares. This is a key divergence from ER, which allows employees to qualify.
4.3 Inclusion of pre-incorporation periods
In direct contrast to entrepreneur relief, retirement relief allows an individual to count the time they spent owning and operating the business as a sole trader towards the 10-year requirement for the company shares. This prevents the "incorporation trap" and ensures that long-standing business owners are not penalized for modernising their legal structure later in the business lifecycle.
4.4 Age thresholds and relief limits
Retirement relief operates through a tiered system based on the age of the disposer. Finance Act 2024 has adjusted these tiers to reflect longer working lives.
Prior to 1 January 2025, the upper age bracket commenced at 66. The shift to 70 aligns the tax system with broader state pension policies.
4.5 Section 598: Disposals to third parties
For disposals to third parties, the relief is an exemption up to the threshold (€750k/€500k). If the proceeds exceed the threshold, "marginal relief" applies. Marginal relief limits the tax payable to 50% of the difference between the sale proceeds and the threshold.
Example
An individual aged 60 sells for €800,000.
CGT: €800k * 33% = €264,000.
Marginal relief: (€800k - €750k) * 50% = €25,000.
CGT payable: €25,000.
This mechanism prevents a cliff-edge where selling for €751,000 would otherwise trigger a massive tax bill compared to selling for €750,000.
5. The €10m cap and deferral
This change ends the era of unlimited tax-free transfers for business owners aged 55-65 (now 55-69).
5.1 How the €10m cap works
From 1 January 2025, if an individual aged between 55 and 69 transfers qualifying assets to a child, the relief is capped at a market value of €10m. Any value transferred in excess of €10m is theoretically chargeable to CGT.
This measure was introduced to ensure that ultra-high-net-worth transfers contribute to the exchequer, while still protecting the vast majority of SME transfers. However, given asset inflation and the valuation of land and intellectual property, many family businesses exceed this €10m threshold, creating a liquidity crisis where the tax bill could force the sale of the business.
5.2 The deferral solution
To address the liquidity concern, the government introduced a "deferral option."
Where the transfer value exceeds €10m, the parent can elect to defer the CGT arising on the excess (or the full gain, depending on the precise application of the relief cap). This deferral effectively pauses the tax liability at the point of transfer.
5.3 The 12-year abatement and clawback
The deferral is not a permanent exemption initially; it is conditional. The condition is that the child must retain the assets for a period of 12 years from the date of transfer.
5.3.1 Abatement (success scenario)
If the child retains the assets for the full 12-year period, the deferred CGT is abated. This means the liability is extinguished, and the transfer becomes retrospectively tax-free (assuming the initial €10m was covered by s 599).
5.3.2 Clawback (disposal scenario)
If the child disposes of the assets within the 12-year period, the deferral is revoked. A "clawback" occurs.
Liability: The child becomes liable for the parent's deferred CGT.
Double charge: The child is also liable for any CGT arising on their own gain from the disposal (calculated from their acquisition cost at the time of transfer).
Anti-avoidance: A new general anti-avoidance provision ensures that the relief/deferral is only available for transfers made for "bona fide commercial reasons" and not for tax avoidance purposes.
This creates a significant "lock-in" for the next generation. For 12 years, the ability to sell, merge, or restructure the business is severely constrained by the threat of the parent's crystallised tax liability.
5.4 Previous clawback rules
Under the pre-2025 rules, a "clawback" period of 6 years applied to section 599 transfers. If the child sold within 6 years, the parent's relief was withdrawn, and the parent (not the child) was assessed.
The new rules shift the liability to the child and extend the period to 12 years for transfers over €10m. This shift in liability to the child simplifies collection for Revenue, as the child is the one holding the liquid proceeds of the sale.
6. Comparison
The following comparative table and analysis highlight the operational divergences between the two reliefs.
6.1 Comparison table
6.2 Divergence in "working" definitions
The distinction between "Managerial/Technical" (ER) and "Working Director" (RR) is a frequent source of confusion.
ER flexibility: ER is designed to accommodate the modern, fluid executive. A founder who steps back to a 3-day week (50% time) to focus on strategy (Managerial) still qualifies. An early employee who is a key coder (Technical) but never joins the Board still qualifies.
RR rigidity: RR is designed for the owner-manager who is synonymous with the business. They must be a Director (statutory officer). They must be full-time (substantially whole time). This often excludes spouses who work part-time in the business or technical staff who hold equity but not directorships.
6.3 Divergence in asset classes
While both require trading assets, ER has a nuanced "bad asset" list (development land, investments). RR uses a "chargeable business asset" definition.
Goodwill: ER applies to goodwill disposed of by a sole trader, but specifically excludes goodwill disposed of to a connected company (anti-avoidance).
Shares: ER requires a 5% holding. RR requires a "family company" status (25% voting rights, or 10% if family owns 75%). This makes ER the only option for minority shareholders (e.g., 5-24% holders) who are not part of the controlling family.
7. Interaction of the reliefs
For entrepreneurs exiting a business, the optimal tax strategy often involves "stacking" both reliefs to minimise the Effective Tax Rate (ETR) . The legislation permits both reliefs to apply to the same disposal, provided the specific conditions for each are met.
7.1 Priority of reliefs
Revenue guidance confirms that Retirement Relief takes precedence because it is an exemption.
Apply retirement relief first: Exempt the gain up to the relevant threshold (e.g., €750,000).
Apply entrepreneur relief second: Apply the 10% rate to the balance of the chargeable gain.
7.2 Calculating the "stack"
Consider an entrepreneur (Age 60) selling a business for €1,750,000. They qualify for both reliefs.
Proceeds: €1,750,000.
RR Threshold: €750,000.
Generally, s 598 is an exemption limit. If proceeds exceed €750k, the full amount is chargeable, subject to marginal relief.
In a stacking scenario, the interaction is complex. If marginal relief (50% tax on excess) is more expensive than ER, the taxpayer effectively bypasses the marginal relief and claims ER on the whole amount?
The standard practice is that ER applies to the chargeable gain. If RR (Marginal) is not claimed because it's less beneficial, the taxpayer claims ER on the full €1.75m.
However, if the disposal can be structured or split, or if the marginal relief calculation is beneficial for the first tranche, it is used.
Trap: Unlike s 599 (child) , s 598 is a cliff-edge relief. You don't get the first €750k tax-free if you sell for €2m. You get marginal relief or nothing. Therefore, for large exits (>€1m), ER usually supersedes RR entirely unless the marginal relief calculation yields a lower tax than 10%.
Calculation:
Option A (Marginal RR): Tax = (€1.75m - €0.75m) * 50% = €500,000.
Option B (ER) :
First €1m @ 10% = €100,000.
Next €0.75m @ 33% = €247,500.
Total = €347,500.
Winner: Option B (ER) .
Conclusion: "Stacking" is most effective when proceeds are close to the €750k limit. Once proceeds exceed approx. €1m, ER becomes the dominant relief.
7.3 Interaction with angel investor relief
The Finance Act 2024 enhanced angel investor relief, offering a 16% rate (or 18% via partnerships) on gains up to €10m.
This relief targets third-party investors, whereas ER targets owner-managers (employees/directors).
An individual cannot claim both ER and Angel Investor Relief on the same portion of a gain. They must elect for the most favorable one.
Tip: If an individual qualifies for both (e.g., a founder who stepped back to be a passive investor but kept 5%), ER is superior (10% rate) up to €1m. For gains above €1m, angel investor relief (16%) is vastly superior to the standard rate (33%).
A sophisticated strategy might involve claiming ER on the first €1m and angel relief on the balance, subject to legislative permission on splitting the gain types (which is complex and restrictively interpreted).
8. Examples
Example 1: The "incorporation trap" (ER failure)
Mary operated a pharmacy as a sole trader for 20 years. She incorporated "Mary Pharma Ltd" in 2023. She sells the shares in 2025 for €2,000,000. She is 50 years old.
Retirement relief analysis:
Age 50: Fail (Must be 55).
ER analysis:
She owns 100% shares.
Has she held shares for 3 years? No (Incorporated 2023, Sold 2025 = 2 years).
Can she count the 20 years as a sole trader? No.
Result: 33% tax.
Tax: €2,000,000 * 33% = €660,000.
Alternative strategy: If Mary had delayed the sale to 2026 (reaching 3 years of share ownership), she would claim ER.
Tax: (€1.5m * 10%) + (€0.5m * 33%) = €150k + €165k = €315,000.
Cost of premature sale: €345,000.
Example 2: The "family succession" (Post-2025)
Patrick (Age 68) transfers his engineering firm to his son David.
Value: €15,000,000.
Date: 1 March 2025.
Retirement relief (s 599):
Patrick is <70. Cap is €10m.
Transfer exceeds cap by €5m.
Option 1: Pay Tax. Patrick pays 33% on €5m = €1.65m. (Assumes relief covers first €10m).
Option 2: Deferral. Patrick claims deferral. Tax paid in 2025 = €0.
The risk:
In 2032 (7 years later), David sells the business for €20m.
Clawback: The 12-year period is not met.
David's liability:
Patrick's deferred tax: €1.65m.
David's own CGT: Gain of €5m (Sold €20m, Base Cost €15m). Tax = €1.65m.
Total tax: €3.3m.
Example 3: The "mature exit"
Brenda (Age 60) sells her business for €750,000.
Reliefs:
She qualifies for RR (10 years working director).
She qualifies for ER (3 years ownership/working).
Optimal choice:
She claims retirement relief (s 598).
Proceeds €750,000 are fully exempt. Tax = €0.
ER status: Her €1m lifetime limit for ER is untouched because there was no chargeable gain.
Future Benefit: Brenda starts a new business. Three years later, she sells it for €1m. She can now use her ER limit to pay just 10% on that second exit.
9. Conclusion
Retirement relief, conversely, has transitioned from an open-ended succession benefit to a regulated, capped, and conditional mechanism. The introduction of the €10m cap and the 12-year deferral rule imposes a heavy compliance burden and "lock-in" risk on the next generation of family business owners. The "working director" requirement remains the bedrock of this relief, prioritizing long-term operational control over passive ownership.
For practitioners, the key takeaway is the necessity of long-horizon planning. The 10-year clock for retirement relief, the 3-year clock for ER, and the 12-year clock for the new deferral mechanism mean that tax efficiency is no longer achieved at the point of disposal, but through the careful structuring of the business years in advance.
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