By Brendan J. Scully, Farrelly & Scully Ltd.
When transferring land or bequeathing lands, you have to consider the tax implications of any proposed transfer for both yourselves (transferrors) and the transferees.
Below is some advice whether you are the person transferring the land or the party receiving it.
Transferrors
You would be making a disposal and Capital Gains Tax (CGT) must be considered, even though it is a transfer and not a sale.
If the current valuation of the lands exceed the cost/valuation when you acquired them (as adjusted for inflation in the meantime), there could be a deemed gain and CGT at 33% of such figure could be charged for transferring land.
However, if you have farmed the lands for the last 10 years and you are over 55 years of age, retirement relief can be claimed.
The lifetime limit for family transfers is €3 million for each transferee. As the lands do not exceed that value, then the relief will ensure that no CGT is payable.
In relation to lands owned by a spouse, the lands may not have been farmed by that person, so would not qualify for the 10 years farming condition.
Accordingly, if the valuation of those lands exceeds the acquisition value, as adjusted for inflation, then there could be some CGT to pay. If lands were acquired prior to April 1974 and the current valuation comes in less than €7,500/ac, it is unlikely that there would be any tax liability.
In the event that you decide to bequeath the lands rather than transferring land, you would obviously have no tax implications. However, there could be some for the beneficiaries when the time comes in relation to Capital Acquisitions Tax (CAT).
Also, by retaining the lands for your lifetime, you would probably not be able to fully avail of the Fair Deal Scheme should you wish to apply for it.
In that situation, up to 22.5% of the valuation of the lands could be charged to Health Service Executive (HSE) to cover care costs.
Transferring land to a transferee
Each can receive a lifetime gift/inheritance from parents to the threshold value of €335,000 tax-free assuming they have received no previous gifts from parents.
For nephews, the tax-free threshold is €32,500. If the land’s valuation exceeds those threshold figures, CAT must be considered.
However, as the transfers comprise agricultural property, each can apply for agricultural relief which reduces the valuation by 90% (well below the tax-free threshold in the case of parents to children).
To qualify, 80% of each transferee’s total assets must be agricultural (a farmhouse qualifies as agricultural property).
That being the case, they would not be liable to CAT. Each transferee’s personal assets (property, cash, etc) cannot exceed 20% of their total assets to qualify for the relief.
E.g., if a son got lands worth €1 million, this would be reduced to €100,000, which is beneath the tax-free threshold of €325,000, so no tax would be payable.
Tax relief
In the case of uncle/aunt to nephew/niece transfers, the land’s valuation could not exceed €325,000, otherwise there could be a CAT liability on the transfer. E.g., if a nephew got lands worth €500,000, this would be reduced to €50,000 after agricultural relief is claimed.
Of this, €32,500 would be tax-free and the balance of €17,500 taxable at 33%.
There is a relief called favourite nephew relief which can be claimed if the transferee has worked on the farm for at least 24 hours per week for the previous five years.
A condition for claiming agricultural relief is that each would have to retain the property for six years and farm it or lease it to an active farmer. A Gift Tax return will have to be filed by each to claim the relief.
If you decide to bequeath the lands rather than transfer, then the proposed beneficiaries would need to ensure that they will qualify for agricultural relief when the time comes, though by that stage they may have accumulated additional personal assets which could knock them out of the relief.
If that is the case, they may qualify for business relief which is similar to agricultural relief in operation.
Transferring land and Stamp Duty
The transferees could be subject to Stamp Duty on the transfer. In respect of a farmhouse, the residential rate of 1% would apply.
Usually, where a farmhouse is included in the transfer, the parents will retain a right of residence for their lifetime.
In relation to lands, the normal rate is 7%, but in the case of family transfers, each would qualify for consanguinity relief, this reduces the duty on land transfers to 1%, subject to the following:
The relief only applies to land transfers. To claim this relief, they must be related to the transferor and farm the land for at least six years or lease it for a minimum of six years to someone who will farm it.
If they are farming the land, they must:
- Hold a specified qualification or obtain one within a period of four years from the date they get the land;
- Or spend at least 50% of his time farming land (including this land transfer).
If, instead of farming the land themselves, they can lease it to someone else to farm, that person must:
- Hold a specified qualification or obtain one within a period of four years from the date you got the land;
- or spend at least 50% of their time farming land (including this land transfer).
If each satisfies the conditions above, consanguinity relief can be claimed and the effective rate of stamp duty would be 1%.
If any transferee is qualified as a young trained farmer, then the rate of stamp duty on land transfers is zero.
There is a cap of €70,000 on the amount of reliefs a young trained farmer can claim, including stamp duty relief, stock relief, farm grants, etc.
The first step should be to get all the lands valued. Then, if you are ready to proceed, you should engage your solicitor to begin the paperwork. As the process can take a little bit of time, it is a good idea to make a will in the meantime.