WITH the budget due on 9 December, agricultural landowners who wish to divest property to their children or other family members, need to act quickly to ensure that the present legislation will apply to such transfers.
According to Niamh Keogh of Aston’s tax and wealth consultancy firm: “The current tax regime provides a significant relief from Capital Acquisitions Tax (gift and inheritance tax) to encourage the continuation of the family farm into the younger generation. Where conditions are met, gift tax (currently 25%) is charged on only one-tenth of the farm’s value. In a recent report, the Commission on Taxation suggested a gift tax charge on one-quarter of the value of the farm (up to €3m), and anything over €3m should no longer qualify for relief. The €3m limit will also apply to the relief from Capital Gains Tax (CGT) that is available to the farmer who is passing on the farm.
“There are 918 farms in Carlow which are above 75 acres in size. And the potential impact within the county is likely to be significant. The transaction of gifting property takes several weeks to complete, so farm owners should act now, as it may cost their family thousands in the future.”
The following is an example of what may happen if these changes are made in the December budget, assuming the tax-free threshold is exceeded:
- A son/daughter receiving a €10m farm would pay gift tax on €7.75m. This would cost €1,937,500. At present the taxable amount is €250,000.
- A farm worth €2m would be liable to €125,000 in tax, rather than €50,000 at present. This sum is due by the recipient, who may then have to sell lands or borrow to fund the tax bill.
Niamh continued: “One important point about agricultural relief is that it currently applies to a recipient who is defined as a ‘farmer’. The test for the relief is based on the recipient’s assets at a particular time, although the recipient must retain the land for six years (with a potential extension to ten years) to avoid a clawback.
“This issue is relevant for farmers who want to pass on the farm to their children (or indeed other recipients). Of course, this should only be done once the farmer’s own financial position is secure, and after the appropriate legal and tax advice has been sought.
“Although a parent may have some concerns at passing over control of the assets, arrangements can be structured to allow much of the value to pass now, while leaving control of the assets with the parent for a defined period.
“The fact is that people need to move now if they want to avail of the current tax reliefs - if they wait, it could end up costing hundreds of thousands extra.”