What Is Retirement Relief?
Retirement Relief is a relief from Capital Gains Tax (CGT) on the disposal of qualifying business assets, such as farmland. To qualify for this relief, the individual must have:
Owned the asset for at least 10 years prior to the date of transfer.
The asset must have been a business asset for at least 10 years.
For farmland, the individual must have continued farming the land up until the date of transfer.
Prior to the changes introduced by Budget 2024, those who had reached the age of 55 but not yet 66 could transfer qualifying business assets to their children without any CGT liability. Once an individual reached 66, a lifetime threshold of €3 million was applied, with any excess over this amount subject to CGT. For disposals to non-children, the thresholds were set at €750,000 for those aged 55-65 and €500,000 for those 66 and over.
What’s Changing from January 2025?
1. Increased Age Limit for Higher Thresholds:
The age at which the reduced lifetime threshold of €3 million applies for transfers to children has increased from 66 to 70 years. This change gives farmers more time to plan their retirement and transfer assets under more favourable conditions.
2. New €10 Million Threshold for Transfers to Children:
For farmers aged 55 to 69, the lifetime threshold of €10 million for transferring qualifying business assets to children has been introduced. Once a farmer reaches the age of 70, the reduced threshold of €3 million will still apply.
3. Unchanged Thresholds for Disposals to Non-Children:
The thresholds for disposals to individuals other than children remain unchanged: €750,000 for those aged 55 to 69 and €500,000 for those aged 70 and over. However, the age limit before moving to the reduced threshold has been increased to 70.
How Do These Changes Affect You?
Let's look at some scenarios to understand how these changes could impact farmers.
Scenario 1: Transferring Farmland to a Child Before Age 70
Example:
Tom, a 68-year-old farmer from Meath, owns a farm valued at €4 million. He wants to retire and pass the farm on to his daughter, Mary.
Impact of Changes:
Under the new rules, Tom qualifies for the higher €10 million threshold because he is under 70.
He can transfer the entire farm to Mary without any CGT liability, as the farm's value (€4 million) is below the €10 million threshold.
Outcome:
Tom successfully passes on the farm to Mary without any CGT implications, benefiting from the increased threshold and the extended age limit.
Scenario 2: Transferring Farmland to a Child After Age 70
Example:
Margaret, a 72-year-old farmer from Kilkenny, owns a farm valued at €5 million. She decides it’s time to hand over the reins to her son, Liam.
Impact of Changes:
Since Margaret is over 70, the reduced threshold of €3 million applies.
The first €3 million of the farm's value is exempt from CGT, but the remaining €2 million will be subject to CGT.
Outcome:
Margaret faces a CGT liability on the €2 million exceeding the €3 million threshold, highlighting the importance of considering these thresholds in retirement planning.
Scenario 3: Disposing of Farmland to a Non-Child Before Age 70
Example:
Sean, a 65-year-old farmer from Cork, owns a farm valued at €800,000. He plans to sell it to a neighbouring farmer.
Impact of Changes:
The threshold for disposals to non-children remains at €750,000 for those aged 55 to 69.
The first €750,000 of the sale is sheltered from CGT, but Sean will have to pay CGT on the remaining €50,000.
Outcome:
While Sean benefits from a significant CGT relief, he still has to pay tax on the portion of the sale that exceeds the €750,000 threshold.
Scenario 4: Disposing of Farmland to a Non-Child After Age 70
Example:
Bridget, a 71-year-old farmer from Galway, owns farmland valued at €550,000. She decides to sell it to a family friend.
Impact of Changes:
For those over 70, the reduced threshold for disposals to non-children is €500,000.
The first €500,000 of the sale is exempt from CGT, but Bridget must pay CGT on the remaining €50,000.
Outcome:
Bridget’s scenario underscores the importance of understanding the thresholds and planning accordingly to minimise CGT liabilities.
Final Thoughts
The changes to Retirement Relief in Budget 2024 are generally positive for farmers, particularly those planning to pass on their farms to their children. The increased age limit provides more flexibility and greater potential savings. However, farmers should be mindful of the reduced thresholds that apply after reaching 70 years of age and for disposals to non-children.
As always, careful planning and consultation with a tax advisor are essential to maximise the benefits of these changes. For farmers looking to secure their legacy and ensure a smooth transition of their farm to the next generation, these new rules provide both opportunities and considerations that should not be overlooked.
