Business Relief – Reducing the Taxable Value of Inheritance or Gift

Capital Acquisitions Tax (CAT) is a tax, currently at 33% on gifts and inheritances.

Business Relief is granted where you inherit or receive a gift of a “relevant business property”. It effectively reduces the taxable value, on which CAT is calculated, by 90%.

Revenue define a relevant business as “a business in any activity, trade, profession or vocation which generates income or profits over time”. Agricultural property which does not qualify for Agricultural may qualify for Business Relief.

Some of the main conditions of Business Relief are:

The business qualifies as “relevant business property”

  • Land
  • Buildings
  • Plant & Machinery
  • Certain quoted or unquoted shares or securities

The owner making the gift or inheritance must have owned the property for a minimum period

  • 5 years for a gift
  • 2 years for an inheritance

You retain ownership of the property for a minimum period of time after the date of inheritance or gift

  • Stop trading within 6 years
  • Sold within 6 years. If property is replaced within 1 year, relief may not be withdrawn

Where a business deals mainly in the following, they do not qualify for business relief;

  • Currencies
  • Securities
  • Stocks or shares
  • Land or buildings
  • Making or holding investments

Example of how Business Relief Reduces a CAT Liability

John inherits the family business on the death of his father

The taxable value of the business was €1,000,000

Value
Taxable Value Before Relief€1,000,000
Less Business Relief (1,000,000@90%)€900,000
Net Taxable Value€100,000

Where Business Relief will not be available on some or all of the business property, it may be possible to put in place a Section 72 policy to ensure that the tax liability does not impact significantly on the cash flow of the business. How a Section 72 policy works is explained here.

It is important to get the right advice on how to manage the tax liability on transferring or receiving business assets.