Why you need to plan?
The recession has decimated development land values. However, agricultural property has held it?s value. irish agriculture is performing well but many farmers may consider passing on the business to their children either due to
- age reasons
- need for fresh ideas in the business
Also as farming is becoming more profitable, the business may provide a source of employment for a child.
Taxes play a large part in the decision because
- there are large values of assets transferring
- thresholds have been reduced
Therefore it it important to structure any transfer so that all available reliefs can be claimed
What taxes are involved?
The main taxes involved are
- Capital Gains Tax
- Inheritance Tax or Gift Tax
- Stamp Duty
- VAT in certain circumstances
Capital Gains Tax
Transferring the business will be a disposal for CGT.? For family transfers the open market value will be deemed to be the price received. The allowable cost will be
- purchase price paid if purchased
- market value at date of inheritance or passing over
CGT Reliefs
If certain conditions are met,transfers to
- children including foster children
- nephew or niece who has worked there significantly full time for the preceding five years
are completely exempt from CGT provided the farming business is held for six years by the recipient
The conditions include
- you must be 55 or over at the date of disposal
- the land and/or farm assets mu st have been farmed by you or your family company for the previous ten years
- If the land has been let within the last five years, you must have farmed it for the ten years immediately prior to letting
Gift Tax
The rate of gift tax is 30% on the market value of the business less any loans attached to it. each child has a tax-free threshold of ?250,000 on a transfer from a parent. Foster children and nephews/nieces who have worked in the business for five years also get this.
Gift Tax Reliefs
For farm property there are two very important reliefs
- Agricultural Property Relief
- Business Property Relief
Agricultural Property Relief
As the name suggestes this applies to agricultural property which is
- farm
- farmhouses
- machinery
- livestock
- trees and underwood
The recipient must have 80% of their assets as agricultural property. This includes the farm being transferred. If they own a residence with a mortgage the value after the mortgage is included in the test.
The recipeint must be resident in Ireland for three years after the transfer
How much is the relief?
The relief reduces the total farm business value by 90% as shown below
| Value of Farm | 1,000,000 |
| Relief 90% of total value | 900,000 |
| Taxable | 100,000 |
Business Property Relief
If the recipient fails the 80% assets test for Agricultural Property Relief they may still get Business Property Relief. This also gives a 90% reduction but only on the debt-free value of the farm. you must have owned the farm for five years, two years in the case of a transfer by will.
This relief will not apply to a farmhouse even if it is an integral part of the farm.
The farm must be operated as a business for 6 years after the transfer. If it is let, the relief might not apply.
Stamp Duty
If the recipient of a farm holds the ?Green Cert? as a young trained farmer the transfer will be exempt from duty. However, the recipient must devote a subsatntial amount of time to the farm business thereafter to avoid cla-back.
The reduction in the rate to 2% has made this liability less significant
Need for advice
We have given a brief outline of the tax issues related to farm transfers. However, it is a complex area and involves important life decisions for you and your family. Therefore professional tax advice is essential. We would be delighted to discuss and advise on your requirements.
For a free initial consultation e-mail us at:? info@conlonosullivan.ie.
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