TAXATION ADVISORY

CAPITAL GAINS TAX RELIEFS & EXEMPTIONS

Retirement Relief/Transfer of land within the family

As pointed out earlier in this section, even if you transfer your farm without receiving a cent in return, you could be liable to pay capital gains tax.

There is however an important relief to assist transfers within the family called Retirement Relief.

In order to avail of this relief the farmer:

• Must be aged 55 years or more at date of disposal
• Disposing of "qualifying assets"
• Owned by him/her for the "qualifying period"

Exception to 55 year age rule

Revenue will consider claims for Retirement Relief where a farmer of 54 years ceases farming due to severe or chronic ill health.

What is a "qualifying asset"

A "qualifying asset", which includes farmland, is an asset which was owned for a continuous period of 10 years ending with the transfer and was also used by the individual for their farming trade for the same continuous 10 year period. For transfers made on or after 1st January 2005 the EU Single Farm Payment Entitlement will qualify provided the farmer fulfills the 10 year rule in relation to the ownership and usage of the land, which is disposed of at the same time as the entitlement.

There are five exceptions to the 10-year use provision where the transfer relates to the following situations:

1. EU Early Retirement Scheme
2. Compulsory Purchase
3. Land let for less than 15 years
4. Transfer of land from child to parent
5. Transfers between spouses

If the transfer relates to any of the five above you should seek professional advice concerning the conditions necessary to avail of Capital Gains Tax Retirement Relief.

Application of Retirement Relief on sales up to €750,000

This particular relief is part of "Retirement Relief" and is available regardless of whether or not the farmer retires. This means that qualifying farmers over 55 years who sell sites or parts of their farm will be free from capital gains tax on amounts up to €750,000 (€500,000 up to 31/12/2006). The conditions attaching to this relief are similar to those outlined in the case of a transfer within the family. However, Exception 3 "land let for less than 15 years" only applies in respect of a disposal to a child. Where the disposal proceeds exceed €750,000 there is marginal relief.

Important points to be aware of

1 The €750,000 ceiling refers to the sales proceeds and not the gain.
2 The €750,000 ceiling refers to the cumulative sales proceeds of assets used in the trade since the farmer attained 55 years of age which can result in a previous disposal which was otherwise exempt becoming taxable.

Dissolution of Farm Partnerships

Where the Capital Gains tax bill arises because of the division of farm partnership assets, the 2008 Finance Act granted relief and to qualify, the assets being disposed of must have been owned and used by the farming partnership for 10 years prior to the revision. This relief is to run to 2013.

Milk Production Partnerships

In the case of husband and wife who are co-owners of land but only one of them becomes a partner in a Milk Production Partnership, an exemption can be sought from the requirement for both of them to become partners in such partnerships by obtaining a certificate from the Minister of Agriculture & Food. Accordingly, Retirement Relief will apply equally to both spouses in respect of disposals on or after 1st January 2005.

Annual Exemption

The first €1,270 of chargeable gains of an individual in any calendar year is exempt. The exemption is not transferable between spouses.

Principal Private Residence

No capital gains tax arises on the disposal of your main residence and grounds of up to 1 acre. If your house was not your principal private residence for the entire period of ownership, any gain arising on the sale of the house will be allowed proportionately. If the sale price of the house is in excess of its value as a residence i.e. the house/ site has development value, the principal private residence Relief will be restricted. Where maintenance, repair and upkeep expenses are being charged in the profit and loss account for part of the house, the Relief will be restricted proportionately.

Small Disposals

The sales proceeds from the disposal of an asset not exceeding €2,540 is exempt from Capital Gains Tax.

Wasting Assets

The disposal of an asset which has a predictable life not exceeding 50 years is exempt. This exemption does not apply to assets which have been used exclusively for the purposes of the farming trade and have or could have qualified for income tax capital allowances.

Transfer of site to child

No liability to capital gains tax arises on the transfer of a site to a son/daughter subject to the following conditions:

• It is for the construction of the son/daughter's principal private residence
• The area of the site does not exceed 1 acre, plus the footprint of the house
• The market value of the site does not exceed €500,000
• When built, the house is occupied for a minimum period of 3 years prior to sale
• A parent can only transfer one site to each child for this exemption
• If the site is disposed of without constructing the house or before it was occupied by the son/daughter for 3 years prior to sale, the capital gains tax relief is clawed back.

Roll-over Relief

Roll-over Relief or Replacement of Business Assets Relief was abolished for disposals occurring on or after 4th December 2002.

However, Roll-over Relief may still be claimed in respect of development land CPO disposals which occurred between 6th December 2000 and 3rd December 2002 where the consideration is re- invested within 8 years of the disposal.

Claw-back of old Roll-over Relief

Where, prior to 4th December 2002, the acquisition of an asset was used to defer/ postpone the capital gains tax bill on a previous disposal, that tax can continue to be deferred so long as the consideration for the disposal of the "new asset" continues to be re-invested into other permitted assets. However, the gain on the disposal of the "new asset" cannot be deferred.

Offset of Capital Gains Tax paid against Capital Acquisitions Tax

Where liabilities to Capital Gains Tax and Capital Acquisitions Tax arise on the same event, a tax credit for the Capital Gains Tax paid is available against the Capital Acquisitions Tax due. In the case of disposals on or after 21st February 2006, this will be withdrawn if the property is disposed of within two years of the date of the original transfer.

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In reading this taxation section interpret the word "he" as meaning he or she and the law stated as at 1st November 2008 incorporating the 2009 budget proposals.

Disclaimer: The taxation content prepared by IFAC Accountants in this publication is intended as an aid to farmers and has been written in general terms and is intended as a guide only and is not intended to be a comprehensive statement of relevant law or regulation with its application to specific situations depending on the particular circumstances involved.

It should not be used as a basis of any conclusion drawn or argument made and the original legislation should be consulted at all times. Accordingly, the reader should seek proper professional advice if acting on any of the issues outlined in this publication and this publication should not be relied upon as a substitute for such advice. While every effort has been made to ensure accuracy, the author or publisher will not accept any liability for loss, distress or damage resulting from any errors or omissions.