Tax Saving Tips for Farmers

Tax Saving Tips for Farmers

If a farmer disposes of certain assets such as land, building, quotas, shares or entitlements he or she may be liable to capital gains tax.  Everyone must file a return for any capital gains or loss.

Preliminary tax for Capital Gains is normally filed as follows:

  1. Disposals up to the 30th of November due by the 15th of December
  2. Disposals in December – tax due by 31st

Capital Gains Tax is applicable on all disposals even if there isn’t money paid over in the transaction or transfer.  The rate is 33%.

An annual exemption of €1,270.00 applies so you can make a gain of €1,270.00 and no tax applies.

A site of 1 acre and up to a value of €500,000.00 is free from Capital Gains Tax.  It must be for the construction of the son or daughter’s principle private residence.  If the house is not built and the site is disposed of or the house isn’t built the relief can be clawed back.  Beware of the value of the site as this will reduce the threshold for gift tax in respect of your child.

Entrepreneur relief reduces the standard rate of capital gains tax from 33% to 10% for qualifying gains.  The value of this relief can be up to €230,000.00.  You can claim entrepreneur relief if you sell all or part of a farm business.   It applies on gains up to €1,000,000.00.   Entrepreneur relief does not apply to investments or development land.

This relief is available to farmers over the age of 55.  The farmer doesn’t need to be retired to avail of it.  The farmer must have owned and farmed the land for 10 consecutive years prior to transfer or prior to entering into a letting/leasing agreement.

If you are over 66 a limit of 3 million applies.

For non- family transfers or transfers to unrelated parties a farmer can transfer disposal assets up to €750,000.00 and have no liability.  If you are over 66 the limit is reduced to €500,000.00.

If you acquire and dispose of agriculture land within 18 months of the earlier transaction capital gains tax relief applies.   For sale/purchase/swop must be between farmers who spent not less than 50% of their time farming.

Small disposals of an asset where the value does not exceed €2,500.00 is exempt from capital gains tax.

While exempt from capital gains tax it could affect retirement reliefs so be careful.

You may dispose of all or part of your business or farming assets to your child.  If you do so you may be entitled to relief from capital gains tax.  The amount of relief that you can claim depends on your age at the time of disposal.  You can claim full relief is between 55 and 65.

If you are 66 or older the relief is restricted to €3 million.

If you child disposes of the asset within six years Revenue will withdraw the relief.

GIFT TAX THRESHOLDS AS OF 10th October, 2018

  • Class A parent €320,000.00
  • Class B relative € 32,500.00
  • Class C non blood relative € 16,250.00

A farmer can receive by way of a gift an amount of €3,000.00 from any person in a calendar year without affecting his tax threshold

This relief reduces the value of the asset you are receiving by 90%.  For example, if you received €2,000,000.00 of agricultural property you will only be taxed at €200,000.00 i.e., 10% of its value.    Make sure you meet the conditions to avail of this relief.    Note there is a clawback of the relief if you fail to satisfy the conditions.  The recipient must qualify as an active farmer to receive this relief.

If you don’t qualify for agricultural relief business relief may be available.  It applies to the transfer of a business or part of a business It reduces the value of the asset by 90%.

In certain circumstances a nephew or niece who has worked on a full-time basis on the farm will be deemed to qualify for this relief.  If they qualify, they can avail of the CAT Group A threshold.

The transfer of property or land is subject to stamp duty.

Transfer of livestock, machinery and basic payment entitlements are not subject to stamp duty.

The rate of stamp duty applicable to residential property is 1% Stamp duty on non-residential property is 7.5%.

There are some assistances to transfers of land as follows: –

  1. Blood relative relief.  Stamp duty between blood relatives is subject to 1% stamp duty instead of 7.5%.  There are no age restrictions to this relief.  However, to obtain this relief you must either: –
  • Farm the land for at least six years.
  • Lease it for at least six years to someone who will farm it.

If you are farming the land, you must: –

  1. Hold a specified qualification or obtain it within a period of four years from the date you get the land.
  2. Spend at least 50% of your time farming the land including this land transfer.  However, instead of farming the land yourself you lease it to someone else to farm it that person must (a) hold a specified qualification or obtain it within a period of four years from the date the land leased or (b) spend at least 50% of their time farming land including this land transfer.

Furthermore, you or the person leasing the land must farm it on a commercial basis and indeed to make a profit from it.

If you fail to abide by these terms, you will no longer qualify for the relief and must amend your stamp duty return to remove the relief and pay the stamp duty and any interest due.

This relates to land which may be transferred by way of a gift or sale.  It applies where the young trained farmer is under 35 at the date of the transfer.

Young trained farmers must have the relevant agricultural qualifications or must acquire the qualifications within four years from the date of execution of the transfer instrument.  The young trained farmer must spend 50% of their time farming the land to qualify.

The conditions to young trained farmer relief are quite onerous and it is limited to start up transfer of land and a business plan must be submitted.  There is a Revenue guideline on this and this should be looked at in detail before this relief is claimed.

The contents of these pages are provided as an information guide only.

While every effort is made in preparing material for publication no responsibility is accepted by or on behalf of McCormack Solicitors for any errors,

omissions or misleading statements on these pages or any site to which these pages connect. Tax and Revenue schemes change criteria regularly. This page is not updated to reflect these changes. Please check with your accountant for all up-to-date tax advice.

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