Budget 2019: Capital tax impact on farmers

Budget 2019 saw no major changes to the Capital Gains Tax (CGT) regime.

The rate remains at 33% for most capital transactions, including the disposal of farmland, and is the third highest CGT rate in the Organisation for Economic Co-operation and Development (OECD).

Given the high rate of CGT in Ireland, it is imperative that good tax advice is sought before entering into most business transactions; including incorporation of your farming sole-trade business; and the sale of farmland.

While the CGT rate remains high, reliefs are available which, if utilised correctly, can eliminate or significantly reduce the effective rate of CGT payable on these transactions.

In FDC Group, the team has decades of experience dealing with such transactions, particularly in the area of farm sales and inter-family transfers of farmland, and will be able to guide you with a view to significantly reducing your CGT burden.

Capital Gains Tax and Retirement Relief

If you are 55 or older, you may be able to claim the relief when disposing of any part of your business or farming assets that you have owned and used for a period of at least 10 years.

Despite the name, you are not required to retire from the business to qualify.

Relief is unrestricted on the transfer of certain business assets on transactions between parents and their children, where the parents are aged between 55 and 66 years. A restriction of €3 million worth of assets is imposed once the parents attain the age of 66.

In relation to third party sales of business/farming assets, relief is restricted to €750,000 worth of assets if the disposal takes place while the taxpayer is aged between 55-66 years, and reduced to €500,000 thereafter.

Revised Entrepreneurs Relief (RER)

Revised Entrepreneurs Relief remains unchanged, allowing for a reduced CGT rate of 10% of the disposal of certain business assets. However, it was disappointing to note that the lifetime restriction to €1 million worth of capital gains was not increased in Budget 2019, given that the UK equivalent cap is £10 million.

Nonetheless, Entrepreneurs Relief remains quite a valuable relief, reducing the CGT rate from 33% to 10% on the disposal of business assets – including farmland.

Capital Gains Tax / Stamp Duty Relief

With regard to CGT and Stamp Duty reliefs for farm restructuring – which provides for a CGT exemption and a reduced rate of 1% Stamp Duty where land is sold and replaced by more suitable land, creating a more efficient farm holding – FDC notes that the period within which the initial sale/purchase takes place was not extended.

Therefore, if you are considering such a restructure, you must complete the initial sale/purchase of land before December 31, 2020, and complete the restructure within 24 months of the initial transaction.

Given that no extension has been granted, time is now very much of the essence if you wish to complete the restructure and claim the valuable CGT Exemption and avoid the 6% rate of Stamp Duty.

FDC Group would be delighted to advise you in relation to the tax issues arising, as well as advising you on the Farm Consolidation Certificate requirements.

Capital Acquisitions Tax (CAT)

Apart from the increase in Class A threshold from €310,000 to €320,000, there were no significant changes to the Capital Acquisitions Tax regime; all the major reliefs remain unchanged for the moment.

Again, the 33% rate of CAT remains – which means that it is vitally important to consider the primary reliefs, including Agricultural Relief and Business Relief, when considering the transfer of your farm or business.

With the correct tax planning, the existing reliefs can provide for the transfer of up to €3.2 million worth of farming/business assets to each child beneficiary.

FDC has the knowledge and expertise required to assist you in the tax-efficient transfer of your farm or business to the next generation and can assist you in all aspects of the transfer.

Stamp Duty

The major talking point in Budget 2019 was the increase in Stamp Duty from 2% to 6% on commercial conveyances. However, in the case of farmland, the scope Consanguinity Relief was widened, meaning that most inter-family land transfers could avail of a reduced rate of 1% where the transfer occurs on or before December 31, 2020.

This deadline was not extended in the present budget.

Therefore, FDC would encourage you to consider the succession of your farm sooner rather than later, as this valuable relief may not be available beyond 2020.

It was also disappointing to note that the relief was not extended to other agri-businesses and business in general.

It was pleasing, however, to see that Young Trained Farmer Stamp Duty Relief – which exempts certain trained farmers aged 35 or under from Stamp Duty on the gift or purchase of farmland – was extended for a further three years, to December 31, 2021. To find out more about FDC Group, click here