The Commission on Taxation and Welfare has published a report today (Wednesday, September 14) recommending a cut in agricultural relief under Capital Acquisitions Tax (CAT) – but without specifying a different rate of relief.
The commission is also recommending that the threshold above which CAT is applied in parent-to-child property transfers be “substantially reduced” from the current figure of €335,000.
The Commission on Taxation and Welfare was established in April 2021 and has been tasked by government to independently consider how best the taxation and welfare systems can support economic activity.
It is understood that its report today and the recommendations contained therein will be considered by Minister for Finance Paschal Donohoe before Budget 2023.
Earlier this week, farm organisations had expressed concern that the agricultural relief on CAT would be reduced from 90% to 80%.
While the commission has recommended a reduction in this relief, it appears to have stopped short of recommending a new rate of relief.
The agricultural relief operates by charging CAT on a reduced market value (referred to as ‘agricultural value’) of the particular agricultural property. Market value is reduced by 90%, with the tax charged on the remainder (after applying any other reduction which may be relevant).
The commission also recommends the qualifying conditions for agricultural relief be amended “to incentivise and ensure active participation in the farm…by the recipient [of the property]”.
On the matter of the thresholds above which CAT is applied, the recommendations would see the group A threshold take a major cut from €335,000 to bring it closer to the group B threshold of €32,500.
Group A contains children who acquire property from their parents (or from their grandparents, in cases where the grandchild’s parent is already deceased).
Given the parent-to-child nature of farm transfers in Ireland, the majority of such transfers would fall into this category.
Group B includes transfers between siblings; nieces or nephews; or a descendent of the person transferring the property (other than those covered in Group A).
For Group C, the threshold above which CAT applies is €16,500. Transfers of property between all persons not covered in groups A and B are catered for in this group.
The report argues that the current group A threshold “appears to be both inequitable and regressive”.
The reduction in the group A threshold would have the effect of increasing the number of farm transfers to which CAT can be applied, by applying the tax to property valued below €335,000.
These proposals are merely recommendations at present. However, they have been described as “abhorrent” by one farm organisation.
The Irish Cattle and Sheep Farmers’ Association (ICSA) said that the dual proposals in relation to CAT on agricultural property will “actively prevent” parent-to-child farm transfers.
“Our farming tradition is based on passing down farming enterprises through the generations,” ICSA president Dermot Kelleher said.
“Family farms being transferred to the next generation cannot be lumped in with six figure tax bills. [This] would totally undermine the future viability of countless farming businesses,” he argued.
“The next generation will either be unable to take over a family farm or will be completely put off from doing so. It is as simple as that.”
The Irish Farmers’ Association (IFA), meanwhile, has slammed the proposals as “disproportionately targeting” farmers.
“These proposals cannot be factored into the upcoming budget, or any future budget. This report will only serve to cause uncertainty for farm families. It’s very hard to plan farm succession or future investment with the level of uncertainty this report will cause,” IFA president Tim Cullinan said.
He also expressed frustration at the lack of a farm sector representative in the Commission for Taxation and Welfare.
According to the IFA, Minister Donohoe has “committed to meet” with the farm organisation on the matter.