Budget 2026: Practical tax reform proposals to support succession and employee-led ownership

This article outlines targeted, evidence-based proposals to refine Capital Acquisitions Tax (CAT), Capital Gains Tax (CGT) and related reliefs, ensuring they reflect today’s business realities while preserving Irish ownership, protecting jobs and empowering employees.

For a broader look at the succession planning challenges facing Irish SMEs and the case for reform, read the first article in this series: Budget 2026: Strengthening succession planning through targeted tax reform

1. Calibrate CAT to modern asset values while preserving progressivity

Proposal A: Index CAT thresholds annually and set a multi-year glide path.

While the Finance Act 2024 increased CAT group thresholds, asset values, particularly housing and private business equity, have long outpaced previous limits. A statutory indexation mechanism, linked to the Harmonised Index of Consumer Prices (HICP), combined with a published three-year glide path, would reduce threshold shock and support predictable planning.

Proposal B: Preserve the 33% CAT rate but expand reliefs tied to succession outcomes.

Maintaining the current rate protects equity and revenue. However, reliefs should be refined to ensure viable enterprises are not broken up or sold to foreign owners due to punitive tax liabilities on intergenerational transfers where no cash consideration is involved.

2. Modernise CAT business relief to reflect group structures and investment reality

Proposal C: Introduce proportional relief for mixed asset companies.

Allow formulaic apportionment of relief based on genuine business use, regardless of legal ownership or structure. This substance-over-form approach would better reflect modern corporate arrangements.

Proposal D: Enable gradual succession transactions.

Current rules favour large, one-off transfers. Relief should be extended to support phased transitions to next-generation owners or key employees, aligning more closely with business strategy and commercial reality.

3. Targeted reforms to agricultural relief for smoother family farm transfers

Proposal E: Review Section 89A before implementation.

From 1 January 2025, the disponer must meet the active farming test for the prior six years. This creates uncertainty and practical challenges. Transitional measures, such as concessions for illness, force majeure or participation in environmental schemes, could prevent inadvertent disqualification while preserving policy intent.

Proposal F: Align retention and reinvestment rules with modern consolidation

Streamline six-year retention and reinvestment rules across taxes to facilitate land swaps and consolidation. Extend stamp duty relief windows that underpin structural reform and transfers to young farmers.

4. Refresh CGT retirement relief and entrepreneur relief for founder handovers

Proposal G: Make age and tapering rules more succession friendly.

Recent reforms introduced tapering from age 70 and capped disposals to children. A phased transfer window (e.g. ages 60–75) would encourage earlier, planned handovers and reduce pressure for compressed, one-off transfers.

Proposal H: Raise entrepreneur relief lifetime limit to €5m for succession disposals.

Retain the 10% CGT rate but increase the lifetime cap where disposals support scaling or succession, such as introducing family, employees or management teams who commit to continuing the trade for five years post-transfer. This could also support transitions to Employee Ownership Trusts, offering a viable alternative to private equity or foreign exits.

5. Empower management-led and employee-led succession

Proposal I: Extend and simplify KEEP.

The Key Employee Engagement Programme (KEEP) has seen limited uptake due to complexity and cost. Extending the scheme beyond 31 December 2025 and introducing a tailored “Succession KEEP” track could enable option exercises to fund partial redemptions or structured buyouts. CGT treatment on buybacks should be preserved, with long-term ownership and retention requirements to ensure businesses remain in Irish hands.

Proposal J: Encourage broadened employee ownership.

Introduce a structured, approved Employee Share Ownership Trust (ESOT) or profit-sharing framework focused on succession. Reliefs should be capped and targeted at SMEs that transfer ownership or control to employees committed to multi-year stewardship. These schemes should allow CGT treatment on the exit of existing owners and permit staged funding to avoid excessive debt leverage on the business.

6. Make the family home rule fit real world caregiving and cohabitation

Proposal K: Fine-tune the CAT dwelling house exemption.

Retain existing safeguards but introduce clear safe harbours for bona fide carers and long-term cohabitants. Relief should apply where the individual meets a three-year residence test and disposes of the property only to downsize within a fixed period. This would avoid forced retention that may be impractical and better reflect modern caregiving and living arrangements.

7. Improve administrative certainty and reduce disputes

Proposal L: Publish consolidated Revenue guidance.

The interaction of Business Relief, Agricultural Relief, Retirement Relief and Entrepreneur Relief is complex. A single “Succession Planning Manual” with common scenarios, such as family companies, mixed-use farms, management buyouts and share redemptions, would reduce errors and disputes. Clear guidance would also support professional advisers and business owners in making informed decisions.

Proposal M: Introduce advance clearance for succession reorganisations.

A narrowly drawn, time-limited clearance mechanism, similar to existing rulings in other contexts, could give families and businesses confidence to proceed. This would be particularly useful where share redemptions, hive downs or group clean-ups are needed before a transfer.

Conclusion

Ireland has experienced sustained economic growth over the past decade, largely driven by multinational corporations and foreign direct investment. However, the reliance on corporation tax receipts from a small number of large companies is not a sustainable model for funding growing fiscal expenditure.

The Irish SME sector offers a real alternative, a stabilising counterbalance that can drive regional development, job creation and long-term resilience. With geopolitical uncertainty and the implementation of BEPS reshaping the global tax landscape, Ireland is well positioned to act.

These proposals are practical, targeted and focused on keeping viable Irish businesses and assets intact through generational change. By empowering employees, clarifying guidance and smoothing administrative processes, Budget 2026 can support succession that strengthens communities and sustains a progressive, balanced tax base.