The relief aims to support start-ups and make Ireland a more attractive location for angel investors. However, achieving the scheme’s aims may face practical difficulties upon analysis.

Background

The Angel Investment Scheme is a Capital Gains Tax (‘CGT’) relief for individuals and partnerships which allows a qualifying investor to avail of a reduced CGT rate of 16% (for an individual) and 18% (for a qualifying partnership) on gains arising from a sale of a qualifying investment in a qualifying company subject to certain conditions. The aim of the relief is to encourage qualifying investors to acquire significant minority shareholdings in innovative start-up SMEs in Ireland.

The Angel Investment Scheme was first included in the Finance Bill (No.2) 2023 and an amended version was included in the Finance Act 2024 but as State Aid approval was required the Investment Scheme was only commenced on 1 March 2025.

Initial Observations

The Finance Bill 2024 increased the previous lifetime limit on gains of €3 million contained in the Finance Act 2023 (No2) 2023 to €10 million, this was seen as a welcome amendment. However, it should be noted that there remain numerous hurdles involved with this relief, including the involvement of various state agencies through the process which present potential challenges to accessibility to the relief.  Consequently, we believe the burdens associated with the relief are likely to mitigate its practical success despite the good policy objective underpinning the scheme. Moving forward, we would encourage the Department of Finance to review the amount of additional investment which arises from this scheme and to reevaluate the current legislative hurdles in conjunction with the results of the level of investment.

Criteria for the CGT Relief

The following is an overview of key conditions which must be met to avail of the tax relief.

“Qualifying Investor”

A qualifying investor is an individual who on their own subscribes for eligible shares in a qualifying company. An investor cannot qualify if they or an associate of the investor are deemed to be “connected” to the qualifying company.

• Other factors may preclude an investor from qualifying for relief, such as:
• If there is an arrangement which reduces the risk associated with the investor’s shares.
• If the qualifying company carries on a business or acquires the assets of a business which was previously carried on by the investor, or an associate of the investor, or by a company owned or controlled by those persons.
• If the company acquires another company that the investor, or a person connected to the investor, owned or controlled, within three years from the date of the investment.

“Eligible Shares”

• Must be new shares issued by the company for cash. They must be issued on or before the 31 December 2026.
• They may be redeemable but cannot hold preferential rights to a dividend or on a winding up. There must be no other terms on the shares or risk-reducing arrangements associated with them.
• The investment must be an arm’s length transaction and must be for bona fide commercial reasons and not be part of an arrangement for a tax advantage.

“Qualifying Partnership”

For an individual to invest via a qualifying partnership, they must first be a partner in such partnership and invest at least €20,000 in the partnership prior to the investment by the partnership in the qualifying company.

To be classified as a “qualifying partnership” the following conditions must be satisfied:

• The agreement must state that any dividends and interest are to be paid without undue delay to partners. Also, the management fees or other associated expenses with the partnership may not exceed the rates in the agreement.
• Must have been established under a valid partnership agreement, with its principal business as investing in funds in accordance with a defined investment policy.
• The terms of the partnership agreement must set out that the funds are to be invested in eligible shares without undue delay.
• The agreement must provide that before the investment in eligible shares, the funds are to be held in a different deposit account in a bank licensed to operate in the State. The agreement must set out that audited partnership accounts are to be prepared annually and submitted to Revenue upon request.

 “Qualifying Company”

 Criteria for eligibility of company to make an application for the relief:

• Is incorporated and is tax resident in Ireland, another EEA state or the UK
• Carries on, or intends to carry on, certain trading activities in Ireland.
• Holds a valid tax clearance certificate.
• Must not control any company other than a qualifying subsidiary.
• Exists wholly for the purpose of carrying on relevant trading activities or holding shares in certain subsidiaries.
• Is an innovative enterprise.
• Must have a business plan and be a company that it is “reasonable to consider” intends to, and has sufficient expertise and experience to, implement the business plan.
• Eligibility criteria relevant to a company and its relief group to make an application:
• Must be an unlisted company with no arrangements in place at the date the eligible shares are issued to become listed in the future.
• Must not be the subject of an outstanding recovery order following a decision of the European Commission that declared an aid illegal and incompatible with the internal market. This applies to aids granted by any Member State.
• Must have all its issued shares fully paid up.
• Must be less than 7 years old at the date of application for the certificates of qualification.
• Must be an SME and cannot be an undertaking in difficulty.

 For a qualifying investment to be made, the relevant company must hold “two certificates of qualification” from the Revenue namely:

• A certificate of a going concern; and
• A certificate of commercial innovation.

Revenue during this process may engage with Enterprise Ireland to ascertain if a company should be issued a certificate of qualification.

“Qualifying Subsidiary”

A holding company can make investments under the relief so long as it does not control, (or together with any person connected with the company does not control), any company other than a qualifying subsidiary.

• To be classified as a “qualifying subsidiary” a company must:
• Be tax resident in the State, another EEA state, or the UK and carries on or intends to carry on, relevant trading activities from a fixed place of business in the state.
• Hold a current valid tax clearance certificate.
• Be at least 51% owned by the applicant company or the qualifying company.
• Not be controlled by any other person.

“Qualifying Investment” (Investor perspective)

A qualifying investment is an investment in eligible shares in a qualifying company by an individual, or via a partnership. The qualifying company is required to provide certificates of qualification to the investor at the time of the investment.

The investment must also meet the following conditions:

• The investment must be made by subscription to eligible shares issue before 31 December 2026 in the qualifying company.
• The investment by an individual must be €20,000. This can be reduced to €10,000 where the investment results in obtaining a 5% or more shareholding in the company.
• The investment made by a qualifying partnership must be at least €20,000. The 5% shareholding reduction option is not available to partnerships.
• The investment must be made as part of the initial finance funding round by the company.

“Qualifying Investment” (Company perspective)

An investment in a company will only be a qualifying investment from the company perspective where:

• the investment is based on a business plan,
• the investment is not an expansion risk finance investment or a follow-on risk finance investment, and
• the qualifying company provides a copy of the certificates of qualification to the investor at the time of investment.

Operation of the Exemption

Revenue may make publicly available, information relating to the fundraising of the company, the amount of eligible financing it has received and the company’s CRO number.

When the above conditions are met the relief will grant a lower rate of capital gains tax at 16% for investors in innovative start-up companies and 18% where the individuals invest via a qualifying partnership.

The CGT relief will only apply to gains arising where the investor disposes of the eligible shares up to twice the value of the initial investment and will be subject to a lifetime limit of €10 million.

The relief is not available on a part disposal of eligible shares or on the redemption, repurchase or repayment of eligible shares.

As well, the qualifying investment in eligible shares must be made before 31 December 2026. The shares are required to be held by the qualifying investor for at least three years before the disposal. During the three-year period, the investor cannot hold more than a 49% shareholding in the company or any member of the relief group.