Business Relief at 90%: Passing a €2m Trading Company to Your Child for €0 CAT
Business relief is one of the most powerful tools in Irish Capital Acquisitions Tax: it cuts the taxable value of a qualifying trading business by 90%. A €2,000,000 company is taxed on just €200,000 — and once you set that against a child's €400,000 Group A threshold, the CAT bill can be precisely nil. The catch is in the conditions: who qualifies, what counts as a real trading business, and a six-year clawback that can undo the whole thing.
What business relief actually does
Capital Acquisitions Tax (CAT) is charged at 33% on the value of gifts and inheritances above the relevant group threshold. Without a relief, passing a €2m company to your child would be a very large tax event.
Business relief works by reducing the taxable value of qualifying property — not the tax itself — by 90%. In Revenue's words, the relief "reduces the taxable value of the business property which Capital Acquisitions Tax (CAT) is calculated on by 90%." You then apply your normal threshold and the 33% rate to whatever 10% remains.
It is a value reduction, applied before the threshold and the rate. That ordering is what makes the relief so effective, and it is the engine behind the worked example below.
Pádraig Brennan, 68, owns 100% of Brennan Engineering Ltd, a genuine manufacturing company he has run for over 20 years. An independent valuation puts the shares at €2,000,000. He gifts the entire shareholding to his daughter Aoife, who has received no prior gifts or inheritances from her parents. Pádraig has owned the shares for more than five years, the company trades and holds no surplus investment assets, so the full holding qualifies as relevant business property.
| Step | Calculation | Amount |
|---|---|---|
| Market value of the shares | Independent valuation | €2,000,000 |
| Less business relief at 90% | €2,000,000 × 90% | – €1,800,000 |
| Taxable value after relief | 10% of value | €200,000 |
| Less Group A threshold (child) | Threshold from 2 Oct 2024 | – €400,000 |
| Taxable excess | €200,000 − €400,000 = below zero | €0 |
| CAT payable at 33% | 33% × €0 | €0 |
Aoife pays no CAT on a €2m company. The 90% reduction brings the taxable value down to €200,000, which sits comfortably inside her €400,000 Group A threshold. She even keeps €200,000 of threshold headroom for future gifts. She must still file an IT38 return claiming the relief — the relief is not automatic — and she must hold the business for six years to avoid clawback.
What is "relevant business property"?
The 90% reduction only applies to relevant business property. Broadly, that means:
- a business, or an interest in a business (for example, a sole trade or a partnership share);
- unquoted shares or securities in a company carrying on a business;
- land, buildings, plant or machinery owned by the disponer but used wholly or mainly by a company or partnership they controlled.
Crucially, Revenue is explicit that "the relief does not apply to individual assets, even if those assets were used in the business." You cannot gift a single van or a single machine from the firm and claim 90% relief on it. The relief attaches to the business as a going concern, or to the shares in the trading company — not to a cherry-picked asset.
The ownership condition (the disponer's clock)
The person giving or leaving the property — the disponer — must have owned the relevant business property for a minimum continuous period immediately before the transfer:
| Type of transfer | Minimum ownership period for the disponer |
|---|---|
| Inheritance (on death) | 2 years immediately before the inheritance |
| Gift (during lifetime) | 5 years immediately before the gift |
Ownership by the disponer's spouse or civil partner — or by a trustee — can count towards meeting this period, which helps in succession planning where assets have moved between spouses.
The beneficiary's clock: a six-year retention test, not a 2/5-year one
It is a common point of confusion. The 2-year and 5-year tests apply to the disponer (how long they owned the business before transferring it). The beneficiary's obligation is the six-year retention period described in the clawback section below — they must keep the business trading and not sell it within six years, or relief is withdrawn. There is no separate two-year or five-year holding requirement imposed on the beneficiary at the time they receive the property; their commitment is forward-looking.
Excepted assets and excluded businesses
Two filters can shrink or block the relief. Get these wrong and a confident €0 calculation can collapse.
Excluded businesses — investment is not trading
Business relief is a trading relief. Revenue states that a business does not qualify if it consists wholly or mainly of dealing in:
- currencies,
- securities,
- stocks or shares,
- land or buildings, or
- making or holding investments.
So a property-letting company, a share-portfolio holding company, or a "money box" investment vehicle will not get the 90% reduction. If Brennan Engineering had quietly become a property-rental business over the years, the relief could be denied entirely. The test is "wholly or mainly," judged on the substance of what the business actually does.
Excepted assets — the value strip-out
Even in a genuine trading company, individual excepted assets are removed before relief is applied. An excepted asset is one that was not used wholly or mainly (more than 50%) for the business in the relevant period — typically surplus cash well beyond working-capital needs, an investment property, or a private holiday home parked in the company. Revenue's mechanic is: strip the excepted assets out, apply the 90% relief only to the remaining qualifying value, then add the excepted assets back at full value.
Suppose Brennan Engineering's €2,000,000 value includes a €300,000 buy-to-let apartment that has nothing to do with the manufacturing trade. Revenue treats that apartment as an excepted asset.
| Step | Calculation | Amount |
|---|---|---|
| Total value | — | €2,000,000 |
| Less excepted asset (apartment) | Stripped out | – €300,000 |
| Qualifying business value | €2,000,000 − €300,000 | €1,700,000 |
| Relief at 90% on qualifying value | €1,700,000 × 90% | – €1,530,000 |
| Reduced qualifying value (10%) | €1,700,000 × 10% | €170,000 |
| Add back excepted asset at full value | — | + €300,000 |
| Taxable value after relief | €170,000 + €300,000 | €470,000 |
| Less Group A threshold | — | – €400,000 |
| Taxable excess | €470,000 − €400,000 | €70,000 |
| CAT payable at 33% | 33% × €70,000 | €23,100 |
The same €2m company now produces a €23,100 CAT bill — purely because €300,000 of it was an investment asset that did not qualify for the 90% reduction. The planning lesson: clear non-trading assets out of the company before a succession event.
The six-year clawback
Relief is not unconditional. For gifts or inheritances taken on or after 1 January 2024, Revenue will withdraw business relief if, within six years of the valuation date, the relevant business property:
- ceases to trade (other than through bankruptcy or an insolvency-related winding-up), or
- is disposed of, in whole or in part — including by compulsory acquisition.
There is a longer ten-year window for development land that is disposed of. If relief is clawed back, the beneficiary must file an additional CAT return and pay the tax that the relief had sheltered.
Three years after receiving Brennan Engineering, Aoife sells the company. Because the sale falls inside the six-year window and she did not reinvest, the relief is clawed back. The taxable value reverts to the full €2,000,000 (the relief is undone), Aoife's €400,000 threshold leaves €1,600,000 exposed, and CAT at 33% of €1,600,000 is roughly €528,000. The €0 bill became a half-million-euro liability simply because she sold too soon.
The escape valve: Revenue will not withdraw the relief if the proceeds are reinvested in other qualifying business property within one year of the disposal. So if Aoife had used the sale proceeds to buy another genuine trading business within twelve months, the relief would survive.
- Business relief reduces the taxable value of qualifying relevant business property by 90% — applied before your threshold and the 33% rate.
- A €2,000,000 trading company drops to a €200,000 taxable value; set against a child's €400,000 Group A threshold, the result is €0 CAT.
- The disponer must have owned the business for 2 years (inheritance) or 5 years (gift) beforehand.
- Only a genuine trading business qualifies — dealing in land, shares, securities or investments is excluded, and excepted assets (surplus cash, investment property) are stripped out at full value.
- A six-year clawback applies if the beneficiary sells or ceases the business — unless the proceeds are reinvested in qualifying business property within one year.
- The relief must be claimed on the IT38 return; it is never applied automatically.
Official sources
Every figure in this guide was checked against the Irish Revenue Commissioners:
- Revenue — Business Relief (90% reduction)
- Revenue — Minimum ownership period (2/5 years)
- Revenue — Businesses that do not qualify & excepted assets
- Revenue — Circumstances in which relief is withdrawn (6-year clawback)
- Revenue — CAT group thresholds (Group A €400,000 from 2 Oct 2024)
- Revenue — CAT rate (33%)
Frequently asked questions
How much does business relief reduce CAT in Ireland?
Business relief reduces the taxable value of qualifying relevant business property by 90%. A €2,000,000 trading company is taxed on just €200,000 of value. Combined with the €400,000 Group A threshold for a child, that can bring the Capital Acquisitions Tax bill to zero.
How long must the disponer have owned the business?
The person giving the business must have owned the relevant business property for a minimum period before the transfer: two years immediately before an inheritance (on death), or five years immediately before a lifetime gift. Ownership by a spouse, civil partner or trustee can count towards this period.
Is there a clawback if the business is sold after the inheritance?
Yes. For gifts or inheritances on or after 1 January 2024, relief is withdrawn if the business ceases to trade or the property is disposed of within six years of the valuation date. Relief is preserved if the proceeds are reinvested in other qualifying business property within one year of the disposal. Development land has a ten-year window.
What businesses do not qualify for business relief?
Businesses that consist wholly or mainly of dealing in currencies, securities, stocks or shares, land or buildings, or of making or holding investments do not qualify. The relief is aimed at genuine trading businesses, not investment or property-holding vehicles.
What are excepted assets?
Excepted assets are assets held within the business that were not used wholly or mainly for the business in the relevant period. Their value is stripped out before the 90% reduction is applied and then added back at full value, so they do not benefit from the relief. Surplus cash, an investment property, or a private holiday home held in the company are common examples.
Does business relief apply to individual assets used in a business?
Generally no. The relief applies to a business, an interest in a business, or unquoted company shares or securities — not to a single asset gifted on its own, even if that asset was used in the business. The narrow exception is an asset used by a company or partnership the disponer controlled, which can qualify in limited circumstances.
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