FARM TRANSFERS & CAPITAL TAXES - 2011 - A YEAR OF OPPORTUNITY FOR TAX PLANNING.
Declan McEvoy is the senior taxation consultant with IFAC Accountants.
The National Recovery Plan and the 2011 Budget states that Capital Gains Tax, Gift & Inheritance Tax and Stamp Duty reliefs and exemptions will either be abolished or greatly restricted in 2012.
Changes already made
- Tax-Free Amounts Reduced
The amount that can be transferred tax-free by way of gift and inheritance has been reduced by 38% since 7th April 2009 as follows:
Threshold to 7th April 2009 Threshold from 8th December 2010 GROUP A: Parent to child €542,544 €332,084 GROUP B: Between related persons €54,254 €33,208 GROUP C: Between non-related persons €27,127 €16,604 - 80% Windfall Tax
An 80% Windfall Tax was introduced effective from 30th October 2009 on disposals of land zoned on or after 30th October 2009 and also where variations to existing re-zonings occurred on or after the same date.
- Increase in Capital Gains Tax and Capital Acquisitions Tax rates from 20% to 25%.
Capital taxes rates have been increased by one quarter from 20% to 25% since 2009.
In normal times these changes would have been considered dramatic, far reaching and even draconian. However, these are not normal times and even more dramatic changes have been signposted.
Which reliefs and exemptions are likely to be abolished or restricted in 2012?
It is not possible to say with certainty which allowances and reliefs will be abolished and restricted. The best indicators I feel are contained in the Taxation Commissions Capital Tax proposals.
There are three capital taxes involved in a farm transfer and they are Capital Acquisitions Tax, Capital Gains Tax and Stamp Duty.
Capital Acquisitions Tax
This is a tax on gifts and inheritances and is levied on the person who receives the gift or inheritance.
Capital Gains Tax
Capital Gains Tax is payable by the individual who disposes of the property and is levied even if the property is gifted i.e. market value is substituted in the case of a gift.
Stamp Duty
Stamp Duty is a duty on the transaction.
LIKELY CHANGES TO GIFT & INHERITANCE TAX
Proposal 1 - Reduction in the Agricultural Relief rate to below 75%
Agricultural Relief is a very valuable relief which allows a farmer to reduce the value of gifts and inheritances received by 90% provided four fifths of the value of the property they own is made up of agricultural property. The Tax Commission propose reducing this relief to a rate below 75%.
Example
Assume a farmer receives agricultural property to the value of €1m and they qualify for Agricultural Relief. If the rate of the relief was to be reduced to 60% in 2012 how would this compare with the current position?
| Now | 2012 | |
| Agricultural Property | 1,000,000 | 1,000,000 |
| Agricultural Relief (90%) | 900,000 | 600,000 (60%) |
| Taxable Value | 100,000 | 400,000 |
| Tax Free Exemption (son) | (332,084) | (332,084) |
| Taxable at 25% | Nil | 67,916 |
| Tax | Nil | 16,979 |
Proposal 2 - Subsume Agricultural Relief into Business Relief
Business Relief is similar to Agricultural Relief in that it allows an individual to reduce the value of a gift or inheritance by 90%. If Agricultural Relief is to operate as Business Relief, as proposed by the Tax Commission, then Agricultural Relief as we know it will be greatly restricted. There are many significant differences between both reliefs and one of them is that the farm dwelling house qualifies for Agricultural Relief but would not qualify for Business Relief.
Example
Assume, from 2012, Agricultural Relief is subsumed into Business Relief and operates at 60%. How would it impact on a 90 acre farm (valued at €8,000 per acre), with a farm dwelling house valued at €150,000 and livestock, machinery and SFPE at €30,000.
| Existing Reliefs | Projected/Assumed Changes | |
| 90 acres @ €8k per acre | 720,000 | 720,000 |
| Farm Dwelling House | 150,000 | Not Allowable |
| Livestock & Machinery & SFPE | 130,000 | 130,000 |
| Assets qualifying for relief | 1,000,000 | 850,000 |
| % Relief | 90% | 60% |
| Amount of Relief | 900,000 | 510,000 |
| Taxable Value | 100,000 | 340,000 |
| Non-qualifying asset farm dwelling | - | 150,000 |
| Taxable Value | 100,000 | 490,000 |
| Child Exemption | (332,084) | (332,084) |
| Taxable at 25% | Nil | 157,916 |
| Tax | Nil | 39,479 |
Proposal 3 - Limit Agricultural Relief to €3m.
The Taxation Commissions proposal is that Agricultural/Business Relief should be restricted to the first
€3m of property passing.
For farmers with estates in excess of €3m this will have serious implications.
LIKELY CHANGES TO CAPITAL GAINS TAX
Capital Gains Tax is a tax payable by a person who disposes of property. The word used is "disposal" and not "sale". A farmer gifting land to a family member without receiving a cent in consideration could still end up with a capital gains tax bill but for the existence of "Retirement Relief".
What is "Retirement Relief"?
This vital relief assists transfers within families where the person transferring is aged 55 or over and who has owned and farmed the land for 10 years prior to the date of transfer. Currently there is no upper limit on the value of the land, buildings etc. qualifying for this relief.
Proposal 4 - Limit Capital Gains Tax Retirement Relief to €3m.
The Tax Commissions proposal is that Retirement Relief should be continued but limited so that it only applies
to asset values of up to €3m.
Again, this has major implications for farm families where the farm and farming assets are valued in excess of €3m.
STAMP DUTY
Stamp Duty is payable by the person receiving or purchasing the property and is a tax/duty on the transaction. It operates at the following rates for agricultural land, sales and transfers.
Stamp Duty Rates:
| Value of transfer | |
| Up to €70,000 | 0% - 4% |
| €70,001 - €80,000 | 5% |
| In excess of €80,000 | 6% |
Land valued at €1m suffers Stamp Duty at 6% i.e. a stamp duty bill of €60,000 and €30,000 for a related party transfer.
Stamp Duty Relief on transfers to Young Trained Farmers
A farmer under 35 years of age who satisfies certain educational requirements is exempt from Stamp Duty on
transfers of agricultural land occurring on/before 31st December 2012.