By Hugh Scanlan

The Finance Act contains a number of tax changes which will prove of interest to farmers. The most significant changes are those relating to how Capital Gains Tax (CGT) applies to land that is being disposed of under a Compulsory Purchase Order (CPO).

* Retirement relief from CGT, which applies to the disposal of agricultural land worth up to €476,150, has previously only been available to persons aged over 55 years, who have owned and farmed the land for the 10 years prior to making the disposal.

The Finance Act extends this relief to apply to lands that have been let at any time during the five years, prior to disposal as a result of a Compulsory Purchase Order (CPO) for the purposes of road building/widening.

Prior to the letting period, the individual must have farmed the land for at least 10 years.

* Roll over relief from CGT has previously not applied to land that has been let during the 10 years prior to its disposal.

Where land is acquired under CPO for the purposes of road building/widening, roll over relief will now apply to any land that has been let within five years of the date of disposal.

This relief is conditional on the individual having farmed the land for at least 10 years prior to being let and that individual must farm the lands in which the proceeds of the disposal are reinvested.

* Where lands are acquired under CPO for the purposes of road building/improvement, the CGT liability will be assessed in the tax year when the proceeds of the sale are received rather than the year in which the land was sold.

CPO and Agricultural Relief

Under previous legislation, if land is disposed of within six years of claiming Agricultural Relief from Capital Acquisitions Tax, the relief could be clawed back. In order to avoid this clawback, it was necessary to reinvest the proceeds in land within one year of the disposal, or four years if the disposal was by CPO.

The 2002 Finance Act extends this reinvestment period to six years, where a CPO applies.

Staying with Capital Acquisitions Tax (CAT), the aggregation period for previous gifts and inheritances now runs from December 5, 1991, rather than December 2, 1988, as was previously the case. The CAT tax exempt thresholds for the current year are shown below.

Other tax changes of interest include -  
* The period for the reinvestment of profits from the compulsory destocking of livestock relating to the diseases BSE, Brucellosis (females only) and Foot and Mouth has been extended from two years to four years.

* Farmers will benefit slightly from an amendment to the capital allowance regulations, relating to plant, machinery and motor cars, which is designed primarily to make life easier for accountants and tax offices. This allows for the 'pooling' of allowances that apply to assets purchased pre and post January 1,2001.

* Interest relief on residential rental income has been restored. There will be full tax relief on the interest on monies borrowed on or after January 1, 2002 for the purchase, repair and improvement of rented residential property.

* The relief for certain medical expenses incurred on behalf of dependent relatives has been extended to apply to a brother or sister, brother or sister in law, son or daughter in law, lineal ancestor or descendant, individuals aged over 65 or permanently incapacitated individuals.

This relief primarily applies to nursing home care.