New Angel Investor Relief for Ireland

Finance (No. 2) Act 2023 introduced a new Capital Gains Tax (CGT) relief, “Relief for Investment in Innovative Enterprises” or “Angel Investor Relief”. Angel Investor Relief will allow angel investors to avail of an effective reduced rate of CGT of 16% or 18% for partnerships on the sale of an investment in an innovative start-up SME. The relief can be applied on a gain of up to twice the value of their initial investment and is subject to a lifetime limit of €3 million.

Before seeking investment, the company must submit its business plan to Revenue. If, following consultation with Enterprise Ireland, Revenue are satisfied, they will issue a certificate of going concern and a certificate of commercial innovation to the company. These certificates of qualification are given by the company to the investor to enable them to claim the relief.

There are conditions for both the investor and company to satisfy before the relief will apply:

An individual investor:

• Cannot be connected with the company when they make the investment, i.e. they cannot be an employee or director of the company and cannot control the company.
• Must retain the shares for a period of at least 3 years.
• Must invest cash of at least €20,000 or at least €10,000 where the shares held by the individual represent at least 5% of the ordinary share capital of the company.
• Cannot hold more than 49% of the company’s ordinary share capital in total.
• Must retain a copy of the certificates of qualification that were valid on the date of investment.

The company must:

• Be incorporated and tax resident in Ireland, another EEA State or the United Kingdom.
• Carry on or intend to carry on its trading activities from a fixed place of business in Ireland.
• Be an “innovative enterprise” i.e.
  • One that can demonstrate, by means of an evaluation carried out by an external expert that it will in the foreseeable future develop products, services or processes which are new or substantially improved compared to the state of the art in its industry, and which carry a risk of technological or industrial failure, or
  • the research and development costs of which represent at least 10 % of its total operating costs in at least one of the three years preceding the granting of the aid or, in the case of a start-up enterprise without any financial history, in the audit of its current fiscal period, as certified by an external auditor;
• Be a company that it is reasonable to consider intends to, and has sufficient expertise and experience to, implement the business plan.
• Be less than five years old and be unlisted.

Angel Investor Relief is currently subject to a Ministerial Commencement Order. Currently, the relief will be applicable to the disposal of eligible shares issued on or before 31 December 2026. It applies on a sale of the entire investment to a third party. It does not apply to buybacks or redemptions effected by the company itself. It cannot be claimed in conjunction with retirement relief and revised entrepreneur relief.

As a new tax relief yet to be signed into operation, it remains to be seen whether Angel Investor Relief will achieve its aims to assist SMEs in attracting investment and to make Ireland a more attractive location for angel investors.

If you have any queries about Angel Investor Relief, please contact us.