Tipp FM Legal Slot – 9th December 2014 – Review of Year – Budget 2015 for Farmers & CGT – 9.12.14
On Tipp FM, Andrea Gleasure, Solicitor, spoke to Seamus Martin on ‘Tipp Today’ about Budget 2015 for Farmers & CGT
Listen to Andrea’s discussion:
[soundcloud id=’181034471′]
BUDGET 2015 FOR FARMERS
In the Budget for 2015, tax incentives were introduced to encourage land transfer and more productive use of agricultural land. Were these significant?
- The changes in Budget 2015 have been generally welcomed by the farming community in a move that is said to encourage long term farming. The government’s aims through the measures available are to try to maximise land use and efficiency while making it easier for farms to be transferred or gifted so as to assist the younger generation of farmers coming through the ranks.
Some of the available tax measures are:
- A Stamp Duty exemption for leases of agricultural land to active farmers lasting between five and 35 years;
- Allowing reduced Stamp Duty of 1% (instead of 2%) on transfers of non-residential property to certain relatives (who are active farmers) until the end of 2017;
- Capital Acquisitions Tax Relief continuing for agricultural property gifted to or inherited by active farmers or those who are not active farmers but lease the land to active farmers on a long term basis;
- Capital Gains Tax retirement relief expansion so that the relief would still apply if land is leased out for up to 25 years prior to disposing of it (previously up to 15 years was allowed);
- Allowing Capital Gains Tax farm restructuring relief to the end of 2016 and broadening it to allow for restructuring through whole farm replacement;
- Extending Capital Gains Tax retirement relief to land let under conacre which is disposed of, or converted to long term lease before the end of 2016;
- Income tax exemption threshold increasing by 50 % for those leasing out farmland and also allowing relief to companies and those who are under 40 years of age;
The benefits to Young Farmers in Particular
- The incentives that are available should encourage the transfer of lands, certainly to active farmers given the reliefs available. The fact that Stamp Duty Relief is also available on transfers of land to young trained farmers who fulfil certain criteria until the end of 2015 will also mean that young farmers in particular would seem to benefit from the current regime.
Will these changes impact on the way wills are made?
This will depend on the particular circumstances of those involved. Taxes payable on inherited assets will be subject to whatever regime is in place when the person passes and so the situation then may be different to now. It is therefore a decision based on many factors such as finances, lifestyle, family relationships, age, health issues and the farm itself amongst others as to whether transfers should take place now, while still alive, or by inheritance through your will.
If a landowner/farmer wants to transfer land to a relative, the first step is to contact their solicitor.
- Transferring the family farm or farm land is a big decision and it is critical that somebody who wishes to transfer would speak to their solicitor at the earliest stage to discuss the various ways that this can be done and to highlight any potential issues that may occur in doing so. There is no “one size fits all” way to transfer and each option needs to be considered, along with their various pros and cons.
- The main objective is to ensure that the person transferring is happy in the way that the farm has been secured for the future and to ensure that if the lands transferred are their sole source of income that they are protected with an income source. Ownership of the land can also be relevant in terms of providing for nursing home fees for example into the future so there can be a lot of areas that the landowner may be unaware of that their solicitor will guide them through.
Some of the various options outside of a straight transfer of all assets can include:
- A transfer to joint names;
- A lease agreement;
- A transfer of the lands with the transferor maintaining an interest in the farm by way of a business partnership;
- Transferring of a farmhouse but reserving a right of residence for the transferor;
- Transfer of certain lands and assets but not all;
- Transfer of certain lands and assets during lifetime and others on death.
Do the changes make it easier for farmers/landowners to do more with their land?
- Yes – the changes from a tax point of view are helpful in providing reliefs and the financial consequences of selling, transferring, leasing or otherwise are usually one of the main decision making factors. There are however other factors that will need to be addressed before finding the right option open to you and a full analysis should be done together with your solicitor before making a final decision. In certain cases also consent of other parties such as co-owners or lenders may be required before any decision can be made.
What benefits can farmers/landowners expect if they sign a long-term lease?
- The benefit of leasing as opposed to transfer is that you would retain ownership of the lands and the tax measures in Budget 2015 do make the leasing option more financially attractive than previously from both a Lessor’s point of view with Income tax and the Lessee’s point of view in Stamp Duty. It has been thought in some quarters however that more should be done to encourage leases within families and to provide additional reliefs to encourage this. In practical terms leasing will not suit every farmer
CAPITAL GAINS TAX – Seven year relief – it’s not too late!
Thinking of availing of the Capital Gains Tax relief on property held for 7 years? The property must be acquired by 31 December 2014.
The Capital Gains tax exemption window now expires on the 31st of December 2014. This has resulted in a race to get deals done and contracts signed before the Christmas break.
The CGT relief was introduced to encourage individuals and companies to acquire property in Ireland. with the growth in property prices in some parts of the country causing some unease, it is no surprise that there has been no further extension. With the deadline fast approaching it is certainly a factor in the property investor market where transaction volume is clearly on the increase.
What is CGT?
Capital Gains Tax (CGT) is a tax charged on the capital gain (profit) made on the disposal of any asset. The general rate of CGT is 33%.
It is payable by the person making the disposal. The gain/profit (the difference between the price you paid for the asset and the price you sold it for) is considered taxable income.
How does the relief work?
The 2012 budget announced a new relief from Capital Gains tax for properties purchased after 7th December 2011. The relief was originally only for property acquired before the end of 2013 but this was extended to the end of 2014. The relief will be removed from the end of this year so it will only apply for properties that are acquired before 31 December 2014.
The relief applies where land or buildings are acquired and held for a period of 7 years. Any gain on disposal referable to that 7 year period is tax free (no capital gains tax).
What happens if you hold the property for longer than 7 years?
If you hold the property for longer than 7 years and sell it more than 7 years after acquisition and a gain is made on the sale, relief will be given for the initial 7 year holding period. For Example, if the property was bought in January 2012 sold in January 2022, the property would have been held for 10 years, so 7/10 of any gain will be relieved from CGT and 3/10 is taxable.
Is it just investors who benefited?
It wasn’t just investors who benefited as disposing of an asset doesn’t just refer to the sale of an asset for money. It includes any transfer of ownership by way of exchange, gift or settlements on trustees. In the context of this current relief however the land or buildings must be acquired at market value (or at 75% or more of market value if purchased from a relative).
In certain circumstances it be more appropriate to make gifts to the next generation during your lifetime. For instance, you may wish to transfer your business or farm to one of your children who are working in the business or on the farm. Or, you may want to give your children a benefit now as they start out in their adults lives to help them get set up. In conjunction with our in-house tax specialist we assist and advise in respect of all aspects of estate and succession planning. We have structured many inter family property transfers in such a way as to ensure this relief is maximized resulting in significant tax savings for our clients and also assisting in estate planning.
Am I too close to the deadline to take advantage of this relief?
With the 31st December 2014 deadline looming, the window of opportunity to complete the purchase of a property is closing fast but it is not too late. The Revenue have recently clarified that a legally binding contract to acquire land or building which is created prior the 31st December 2014 will allow a purchaser qualify for the CGT relief even if the contract/purchase does not complete until 2015 or even beyond.
Are there any hidden traps?
The main note of caution is that the contract must be unconditionally legally binding. Therefore, if the contract is created on the 1st December 2014 but is conditional upon loan approval, then it is not an unconditionally legally binding contract until the loan is approved. For example if the conditional contract is created on the 1st December 2014 but the condition is not satisfied until the 2nd January 2015 (e.g. when the bank issues the loan approval) then the CGT relief will not be available to the buyer. The types of conditions that might typically arise in respect of the acquisition of land or buildings would be contracts made conditional on loan approval, a grant of planning permission, rezoning, consent of the seller’s bank in a negative equity sale – in effect, some factor outside the direct control of the purchaser or seller. If a contract contains any of these types of conditions and such condition is not satisfied by the 31st December 2014 then the buyer will not be entitled to the CGT relief.
Capital Gains Tax can be more complex then the examples above. For this reason you should get expert legal advice.
