I was planning to sell some land, as I want to cut back on the level of farming I do. I have two parcels: one of which I inherited 20 years ago and another that I inherited it in 2012. I was talking to my auctioneer, and he said I should be careful of the tax implications. I am 53 years old and have been farming for over 20 years. Is he right, and could it have an impact on the parcel of land should I sell? They are both around 20 acres.
Alex
Your auctioneer is right, in that you should always get advice on the tax implications of selling land. There are actually two things at play here. The first is capital gains tax retirement relief and the second is agricultural relief.
First, let us look at capital gains tax retirement relief. To get this relief, you have to be at least 55 years of age and either sell or gift the land. There are some exceptions, such as chronic ill-health, where you can qualify at an earlier age. The relief is called retirement relief, but you do not have to retire, so you can farm away on the other block of land.
You also have to have owned and farmed the land for 10 years, up to the date of sale or transfer. If you did not want to sell it now but you want to benefit from the relief at a later stage, you have to lease it out on a long-term basis of over five years or more to a farmer with the correct qualifications.
First hurdle
So the first hurdle is that you are not yet 55 years old. If you inherited the land in 1996, land values were around €3,000 per acre. There is a multiplier index for land received/bought before 2003. In your case, it is 1.277. This means that the initial value is €3,831/acre. So if you sold if for €10,000, that’s a capital gain of €6,169/acre. Therefore, if you sold 20 acres for €10,000/acre, the capital gain would be €123,380.
You take away your yearly threshold of €1,270 to give you a taxable gain of €122,210. At 33% capital gains tax, this works out at a tax bill of €40,296. You can see how beneficial the retirement relief will be, so it is worth waiting for the two years before you sell.
Land is, by its nature, a qualifying assets and so are basic payment entitlements. You did not say if you have any, but if so you have the option to sell those with the land and get retirement relief on them. Selling the entitlements separately, you would be hit by a 50% claw back. The other option is to lease them out separately.
Note the thresholds
It is worth nothing that there are thresholds that have changed on the amount of assets you dispose. These change depending on your age. When you dispose of the assets between 55 and 65 years of age and the consideration does not exceed €750,000, relief is given in respect of the full amount of tax chargeable on the disposal. So this means you will be alright.
Once the value goes over €750,000, marginal relief applies, so as to limit the amount of tax chargeable to one-half of the difference between the amount of the consideration and €750,000.
Where the individual selling the assets is 66 years of age or over, the threshold drops to €500,000 relief for the full amount of tax chargeable. Over this, marginal relief applies. The €500,000 for individuals over 66 years is a lifetime limit for disposals of qualifying assets on or after 6 April 1974, made at a time when the individual was at least 55 years of age. You will not be above those limits, but anyone selling a more land or assets should take them into account.
For the second parcel that you inherited in 2010, the big question is if you get agricultural relief. This is a relief that you receive if, on the date of transfer, your agricultural assets are 80% of your total assets. It is called the farmer test. It would have reduced the value of the inheritance by 90% for capital acquisitions tax. So, for example, if the land you inherited was valued at €10,000/acre or €200,000 in total it would have reduced the value to just €20,000.
Who you inherited from
Who you inherited from would impact your thresholds. The land you inherited in 1996 would also be taken into account in establishing the amount under the threshold. The agricultural relief back in 1006 was 75%.
If you received that, it is likely that you did not pay capital acquisitions tax. However, you have to hold onto the land for six years or else the relief is clawed back.
So, in short, it points to waiting two years until you are 55 to make a decision to sell. At that stage, you will have held the second parcel for the required six years (make sure it is six year and one day), so you can make the decision to sell either block without having to get a claw back on agricultural relief or pay capital gains tax due to retirement relief.
If you think it is not simple you are right. You should get specific advice from your accountant at that stage.
In brief:
Always get tax advice when selling land.You have to be over 55 years old and have farmed and owned the land for 10 years, in order to get retirement relief. You can lease land out for five or more years and still get retirement relief.You don’t have to retire from farming. Watch the six-year rule for agricultural relief.
I was planning to sell some land, as I want to cut back on the level of farming I do. I have two parcels: one of which I inherited 20 years ago and another that I inherited it in 2012. I was talking to my auctioneer, and he said I should be careful of the tax implications. I am 53 years old and have been farming for over 20 years. Is he right, and could it have an impact on the parcel of land should I sell? They are both around 20 acres.
Alex
Your auctioneer is right, in that you should always get advice on the tax implications of selling land. There are actually two things at play here. The first is capital gains tax retirement relief and the second is agricultural relief.
First, let us look at capital gains tax retirement relief. To get this relief, you have to be at least 55 years of age and either sell or gift the land. There are some exceptions, such as chronic ill-health, where you can qualify at an earlier age. The relief is called retirement relief, but you do not have to retire, so you can farm away on the other block of land.
You also have to have owned and farmed the land for 10 years, up to the date of sale or transfer. If you did not want to sell it now but you want to benefit from the relief at a later stage, you have to lease it out on a long-term basis of over five years or more to a farmer with the correct qualifications.
First hurdle
So the first hurdle is that you are not yet 55 years old. If you inherited the land in 1996, land values were around €3,000 per acre. There is a multiplier index for land received/bought before 2003. In your case, it is 1.277. This means that the initial value is €3,831/acre. So if you sold if for €10,000, that’s a capital gain of €6,169/acre. Therefore, if you sold 20 acres for €10,000/acre, the capital gain would be €123,380.
You take away your yearly threshold of €1,270 to give you a taxable gain of €122,210. At 33% capital gains tax, this works out at a tax bill of €40,296. You can see how beneficial the retirement relief will be, so it is worth waiting for the two years before you sell.
Land is, by its nature, a qualifying assets and so are basic payment entitlements. You did not say if you have any, but if so you have the option to sell those with the land and get retirement relief on them. Selling the entitlements separately, you would be hit by a 50% claw back. The other option is to lease them out separately.
Note the thresholds
It is worth nothing that there are thresholds that have changed on the amount of assets you dispose. These change depending on your age. When you dispose of the assets between 55 and 65 years of age and the consideration does not exceed €750,000, relief is given in respect of the full amount of tax chargeable on the disposal. So this means you will be alright.
Once the value goes over €750,000, marginal relief applies, so as to limit the amount of tax chargeable to one-half of the difference between the amount of the consideration and €750,000.
Where the individual selling the assets is 66 years of age or over, the threshold drops to €500,000 relief for the full amount of tax chargeable. Over this, marginal relief applies. The €500,000 for individuals over 66 years is a lifetime limit for disposals of qualifying assets on or after 6 April 1974, made at a time when the individual was at least 55 years of age. You will not be above those limits, but anyone selling a more land or assets should take them into account.
For the second parcel that you inherited in 2010, the big question is if you get agricultural relief. This is a relief that you receive if, on the date of transfer, your agricultural assets are 80% of your total assets. It is called the farmer test. It would have reduced the value of the inheritance by 90% for capital acquisitions tax. So, for example, if the land you inherited was valued at €10,000/acre or €200,000 in total it would have reduced the value to just €20,000.
Who you inherited from
Who you inherited from would impact your thresholds. The land you inherited in 1996 would also be taken into account in establishing the amount under the threshold. The agricultural relief back in 1006 was 75%.
If you received that, it is likely that you did not pay capital acquisitions tax. However, you have to hold onto the land for six years or else the relief is clawed back.
So, in short, it points to waiting two years until you are 55 to make a decision to sell. At that stage, you will have held the second parcel for the required six years (make sure it is six year and one day), so you can make the decision to sell either block without having to get a claw back on agricultural relief or pay capital gains tax due to retirement relief.
If you think it is not simple you are right. You should get specific advice from your accountant at that stage.
In brief:
Always get tax advice when selling land.You have to be over 55 years old and have farmed and owned the land for 10 years, in order to get retirement relief. You can lease land out for five or more years and still get retirement relief.You don’t have to retire from farming. Watch the six-year rule for agricultural relief. 
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