WHAT'S ANOTHER YEAR - TAX AND OTHER CHANGES IMPACTING ON FARMLAND.
Declan McEvoy, Senior Tax Consultant with IFAC Accountants outlines recent changes which impact on land sales and transfers.
NEW 80% WINDFALL TAX ON REZONED LAND
Introduced in the NAMA Act the purpose of this change is to charge income tax and capital gains tax at a rate of 80% on profits from the rezoning of land.
What is meant by rezoning?
Rezoning means a change in the zoning of land in a Development Plan or Local Area Plan made or varied on/after 30th October 2009 from non-development land-uses to development land-uses or from one development land-use to another development land-use including a mixture of such uses.
What is meant by development land-use?
Development land-use means residential, commercial or industrial uses or a mixture of such uses.
What is meant by non-development land-use?
Non-development land-use means a land-use which is agricultural, open space, recreational or amenity use or a mixture of such uses.
From the above it can be seen that if your land was zoned prior to the 30th October 2009 the new 80% windfall tax will not apply to it.
However, variations to existing re-zonings on/after 30th October 2009 will render dealings in such lands liable to the 80% tax. It is not necessary for a re-zoning to occur from "non-development land-use" to "development land-use", it also encompasses re-zoning within such categories e.g. residential to commercial, industrial to commercial, residential to industrial etc.
The 80% rate of tax does not apply to land that is the subject of a Compulsory Purchase Order. The Finance Bill 2010 published recently proposes exempting a small site which is defined as not exceeding 1 acre in size and whose market value at the time of the disposal does not exceed €250,000.
Likely impact on future supply of Development Land
There is little doubt but that the imposition of an 80% tax on development land will restrict the supply of development land as landowners to take into account the after-tax returns from the sale of such an asset.
DEALING IN AND DEVELOPING LAND - CAPITAL GAIN OR INCOME TAX
During 2009 the special 20% Income Tax Rate which applied to trading profits from dealing in or developing residential development land was abolished thereby exposing such dealings to the top Income Tax Rate i.e. 41% plus levies. The change is effective from 1st January 2009.
When the Capital Gains Tax Rate was 20% and the special 20% Income Tax Rate was available a farmer selling a site could avail of either rate. The position now is if the Tax Inspector can prove that the farmer is actually dealing in land as opposed to having a once-off capital gain, then the transaction will be liable to the higher income tax rate i.e. 41% plus levies.
The introduction of the 80% Windfall Tax and the removal of the special 20% Income Tax Rate from profits earned in dealing in or developing residential development land makes it imperative that landowners seek good professional advice before selling or transferring land with development value.
GIFT & INHERITANCE TAX
Change in rates of tax
2009 has seen the rate of Gift & Inheritance Tax increase from 20% to 25%.
24% reduction in tax-free thresholds
The past year has also seen a dramatic reduction in the value of property that may be transferred tax-free. The amount that may be transferred tax-free depends on the relationship of the individual receiving the property to the donor/transferor of the property.
The changes in the tax exempt amounts are as follows:
| Threshold to 7th April 2009 | Threshold from 8th April 2009 | Threshold from 1st January 2010 | |
| GROUP A: Parent to child | €542,544 | €434,000 | €414,799 |
| GROUP B: Between related persons | €54,254 | €43,400 | €41,481 |
| GROUP C: Between non-related persons | €27,127 | €21,700 | €20,740 |
IMPACT OF THE NEW NURSING HOME SUPPORT SCHEME ON FARM TRANSFERS
The Nursing Home Support Scheme is a new scheme of financial support for people who need long-term Nursing Home care. Under the new scheme farmers will make a contribution towards the cost of Nursing Home care and the State will pay the balance.
Financial Assessment
The Financial Assessment, which is part of the application process, determines how much a farmer will have to pay for the Nursing Home Care by reference to their income and assets.
The annual contribution will be determined by:
- 80% of yearly total income, plus
- An annual 5% of the value of any assets held taking into account assets transferred at less than 75% of market value in the previous 5 years. There are certain ceilings and exemptions in relation to the above calculations.
What happens if you have insufficient cash to pay the 5% annual asset contribution?
Where the assets include land and property in the State, the 5% annual contribution based on such assets may be deferred. The HSE will pay the money to the Nursing Home on the farmer's behalf and it will be collected after death and the loan will be adjusted for inflation/deflation based on the consumer price index.
This is effectively a loan advanced by the State, charged on the farmer's estate, which can be repaid at any time but will ultimately fall due for repayment on death. If the property is sold or transferred prior to death the loan must be repaid.
In future many Young Farmers, on succession to the farm, will have deferred Health Care Charges attaching to the family farm requiring immediate payment. The message for farmers and business people is to plan early for succession and take the appropriate advice to ensure that the farm is subjected to the minimum cash extraction arising from taxation and health charges.