Retirement relief is available to farmers who took part in the EU Retirement Scheme and in certain circumstances where the farm was let during the 15-year period ending on the date of disposal/transfer.
So, taking the example of a 100-acre farm, worth €750,000, if a farmer is aged between 55 and 65, he can transfer a farm with a value of €750,000, either within or ouside the family, without any Capital Gains tax (CGT) liability. If the farmer is over 66 years of age, he can transfer within the family tax-free.
However, if the transfer or sale of a farm is to a person outside of the family, there would be a CGT liability of 33% on the capital gain arising. The gain would be calculated by comparing the current value of the lands with their original cost/valuation when they were acquired by the farmer. CGT was introduced in April 1974 and there is an indexation allowance granted for price increases from then until December 2002.
For example, if the farmer acquired the 100 acres of lands in 1970, the lands would firstly have to be valued at 5 April 1974 (when CGT was introduced). This is the base cost. Lets say the value then was €1,000 per acre, €100,000.
The indexation factor is 7.528, so the revised base cost is €100,000 x 7.528 = €752,800. Since the current valuation of €750,000 is less than this, no CGT is payable.
If say the lands were acquired in 1980 for €200,000, the indexation factor would be 3.24. The base cost would then be €200,000 x 3.24 = €648,000.
As this less than €750,000, there is a deemed gain of €102,000. There would be CGT payable of 33% presently, that is €102,000 x 33% = €33,660. The costs of acquiring and disposing of the assets are allowed as an expense against this.
A further relief available in the case of a family transfer concerns a niece/nephew. The tax-free threshold for a niece/nephew is currently €30,150.
However, if that niece/nephew can show that he/she worked on the farm on a substantial basis (at least 18 hours per week) for the period of five years preceding the date of transfer, they can claim the child tax-free threshold of €225,000.
There would need to be evidence of the employment so a good ideea is for the farmer to register as an employer with Revenue, pay a regular wage to the niece/nephew and make the appropriate PAYE/PRSI/USC returns to Revenue.
Another valuable relief is transferring a site to a child for the purpose of building a residence. A site of up to one acre and up to a value of €500,000 can be transferred tax-free to the child. The child must construct and occupy the residence for at least three years, otherwise the relief is withdrawn.
1. On death – by inheritance.
2. Lifetime transfer – by gift.
A transfer of property brings into play three different tax headings to be considered:
1. Stamp duty.
2. Capital Gains Tax for the transferror/disponer (CGT).
3. Capital Acquisitions Tax for the transferee/beneficiary (CAT).
It must be emphasised the importance for anybody with property assets to make a will.
If there is no will, the property assets are by law divided amongst your next of kin. This may not be the intention of the disponer and there may be disagreement between the beneficiaries resulting in the sale of the poperty. So the first rule is ‘make a will’.
Land or property which passes on death is not liable to stamp duty. As death is not considered a disposal for CGT purposes, there is no CGT liability for the disponer or their estate. So the only tax consideration that applies is CAT (also described as Inheritance Tax) for the beneficiary.
A beneficiary may acquire a tax-free inheritance up to the following limits:
1. From a parent €225,000
2. From a relative €30,150
3. From a stranger €15,075
These are lifetime limits and separate inheritances/gifts in each class must be aggregated.
Brendan J. Scully, FCCA, Farrelly & Scully, Chartered Certified Accountants, Navan.