From January 1 next, the threshold is being increased to €1.5m, which means that business people selling their firms will pay only 10pc Capital Gains Tax up to that amount.
At the moment, the lower rate applies to gains up to €1m.
Una Ryan, a tax partner in Grant Thornton, said: “If considering selling a qualifying business for €5m today, an owner could realise an extra €115,000 by waiting until 2026. This could bring such deals to a halt for three months as €115,000 is a material cash amount.”
She also pointed out that the new limit of €1.5m coincides with an increase in the CGT rate for such deals in the UK, making Ireland a more attractive place to set up a business.
“The Irish Entrepreneur Relief has had a lifetime limit of €1m for a number of years. This used to pale by comparison to the UK where the limit for Business Asset Disposal Relief was £10m [€11.5m] up until March 2020 when it dropped to £1m,” she said.
“The reduced rate in the UK has increased from 10pc to 14pc, and is set to go to 18pc in 2026.”
Brendan Murphy, a tax partner with Baker Tilly Ireland, agrees that the budget announcement could slow down mergers and acquisitions (M&A) activity for the rest of the year.
There used to be a press at the end of the year to get deals done
“Over the last 12 to 18 months, deals have got a lot slower anyway, so I don’t think drifting by two to three months would be that unusual,” he said.
“There used to be a press at the end of the year to get deals done, but last year that didn’t happen. People are taking more time, and weighing up their options before they close a deal.”
Mr Murphy said the wording in the upcoming Finance Bill will be closely watched, in case it attaches any unexpected terms and conditions, such as saying that if a business person has signed the “heads of terms” before Budget Day then the deal is considered closed.
Richard Grey
He is currently processing two sales, and says the parties are aware that waiting until 2026 could mean saving €115,000. This is because a rate of 10pc would be paid on an extra €500,000 of the value.
“That could cover all your legal fees, so it’s worth holding out for,” he said. “For a business worth €10m, it’s an effective 30pc rate on the deal, whereas up to the end of 2025 the rate is 31pc.
“As the value of the business gets bigger, it’s not as important, which is why we have been pressing for the limit to be increased to €3m-€5m.”
Richard Grey, a partner in A&L Goodbody, says the firm has not seen any impact to date, and doesn’t necessarily expect the change to delay sales until January.
“This is on the basis that although the change is very welcome, entrepreneurial tax relief is still very low by international standards and therefore I wouldn’t expect it to be a driver of seller behaviour in terms of delaying M&A activity,” he said.
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