Over the past number of years, different budgets have altered the treatment of taxes that pertain to land and owners need to be aware of these to help plan for the future. This article identifies seven specific areas of relevance and eight specific tax planning recommendations.
1. Seven-year capital gains tax holiday extended
The 2014 Budget extended the qualifying date for capital gains tax (CGT) relief to 31st December 2014.
This CGT holiday applies to land, buildings and property in the State purchased between 7 December 2011 and 31 December 2014, where the property is held for more than seven years. Where such property is held for more than seven years, the CGT relevant to that seven-year period will not attract capital gains tax on a future disposal.
Tax planning action 1: If you can
identify assets which you feel will
appreciate in value over time, availing
of this capital gains tax incentive may
be worthwhile. If you have purchased
land since 6 December 2011, be aware
of the capital gains tax relief attaching
to it.
2. Land leasing
Certain farmland leases are exempt from income tax. This is a very attractive income tax relief for those wishing to lease their land for a period of five years or more. The level of income tax exemption depends on the length of the lease, as shown in table 1.
Where the lease includes the land and EU Single Farm Payment entitlements, the rental income attributable to the EU Single Farm Payment also qualifies for the relief, subject to the appropriate ceiling.
The following conditions apply:
• The lease must be in writing or evidenced in writing;• The land must be leased to an individual or individuals who are unconnected with the lessor and who use the land for the purposes of farming.The income of joint tenants, such as husband and wife, is treated separately, whether they are jointly assessed or not. Joint lessors are entitled to separate maximum exemptions of the appropriate amount against their respective shares of the rent from the qualifying lease.
Tax planning action 2: Could you
convert current rental income which is
taxable into tax-free income?
3. Tax relief on sales/voluntary transfers to someone other than a child
The purpose of this measure, operative from 1 January 2014, is to encourage older farmers who do not have a child to succeed to their farm business to either (a) lease out their farmland over the long term to younger farmers, or (b) sell their land.
There is a special capital gains tax retirement relief on disposals of farmland, up to a ceiling of €750,000 (€500,000 if over 66 years of age) where the land was originally farmed and owned for a continuous period of 10 years or more and subsequently let for a period of less than 15 years.
Up to 1 January 2014, this relief only applied where the sale/transfer was to a child of the landowner.
Relief on non-child transfers/sales after 1 January 2014
This valuable relief, with effect from 1 January 2014, is being extended to transfers other than to a child, provided that:
• The land was owned by the transferor/vendor and used by him/her for the purposes of farming for a period of not less than 10 years prior to the letting of the land, and;• The land was let for a period of less than 15 years to a person(s) for the purposes of farming, and;• Each letting of the land was for a period of not less than five consecutive years.Tax planning actions 3: If letting land
which you hope to sell in the future,
and you wish to avail of this relief,
ensure letting periods are of not less
than five consecutive years’ duration
and the combined leases should not
be for a period exceeding 15 years.
Tax planning actions 4: If selling land
which was/is leased by you, check to
see if you can avail of this valuable
relief.
There are complex rules surrounding this relief – seek sound professional advice regarding your entitlement to it.
4. Capital gains tax farm
restructuring relief
This is a relief from capital gains tax applying to a sale, purchase or exchange of agricultural land in the period 1 January 2013 to 31 December 2015 where the transactions are for farm restructuring purposes.
The conditions attaching are as follows:
• The initial transaction occurs within the period 1 January 2013 to 31 December 2015.• The matching sale or purchase must occur within 24 months of the initial transaction.• Where it is a swap or exchange of land, both transactions must occur within the period 1 January 2013 to 31 December 2015.• The sale, purchase, exchange or swap must be between farmers who spend not less than 50% of their normal working time farming.• Where joint tenants are involved, each joint owner must satisfy the time requirement of spending not less than 50% of their normal working time farming.• All transactions seeking relief must be certified by Teagasc as qualifying for the relief.Where the sale takes place before the purchase, capital gains tax will have to be paid in the normal manner and a claim for the refund of the excess capital gains tax paid can be made at the time of the subsequent purchase.
What is farm restructuring?
In practice, the sale of an existing farm and the replacement of it by the purchase of another farm is not regarded as farm restructuring. To qualify for this relief, the interactions of the sale, purchase or exchange should together result in an overall reduction in the distance between land parcels comprised in the farm, including land that has been leased for at least two years with a minimum of five years to run.
Does all land qualify for the relief?
No, the land must comply with the following conditions:
1. It must be situated in the State and;2. It must be agricultural land, which excludes afforested land, peat land or habitable dwellings.Tax planning action 5: If you are
currently in the process of, or plan to
carry out farm restructuring, build this
very important relief into your plan.
5. Lands held in joint tenancy
A special capital gains tax relief, which was available to partnerships on the breaking of a joint tenancy, expired on 31 December 2013.
With effect from 1 January 2014, the breaking of all joint tenancies will be subject to capital gains tax (except tenancies with spouses).
Tax planning action 6: If you own land
jointly with someone other than your
spouse, don’t break the tenancy
without seeking professional tax
advice as the breaking of this tenancy
is subject to capital gains tax.
6. Farmers over 66 years disposing of land from 1 January 2014
Non-family land sales and
transfers
The €750,000 capital gains tax retirement relief, which applies to the sale or transfer of land, sites etc. to non-family members, was reduced to €500,000 for those transfers occurring after 31 December 2013 by farmers aged over 66 years.
Intra-family land sales/transfers
From 1 January 2014, a €3m ceiling on the intra-family retirement relief will apply to transfers/sales by farmers aged over 66 years of age.
Tax planning action 7: Landowner’s
66th birthday, from 1 January 2014,
has now become significant for
capital gains tax and estate planning
– re-examine your farm transfer plan
in light of this recent change.
7. Gift/inheritance tax – free use of land deemed to be a gift
If you have the use of someone else’s land and are not paying them the rent the land would secure if let on the open market, then you are deemed to have received a gift from that person.
How is the gift quantified?
The difference between the rent the property would secure if let on the open market and the amount you paid is deemed to be the amount of the gift.
Example:
John Farmer is farming his father’s land. It consists of 200 acres and the open market rental value for similar type of land in the locality is €200 per acre. He is not paying his father any rent for the land.
The deemed gift is therefore €200 x 200 = €40,000 (minus €3,000 annual gift tax exemption).
If this situation is allowed to continue over a number of years, the tax exempt amount John can receive from his father will be drastically eroded by the time his father transfers the land to him.
Tax planning action 8: If you are not
paying full market rent for any land
you have the use of, speak with your
accountant about it.
Over the past number of years, different budgets have altered the treatment of taxes that pertain to land and owners need to be aware of these to help plan for the future. This article identifies seven specific areas of relevance and eight specific tax planning recommendations.
1. Seven-year capital gains tax holiday extended
The 2014 Budget extended the qualifying date for capital gains tax (CGT) relief to 31st December 2014.
This CGT holiday applies to land, buildings and property in the State purchased between 7 December 2011 and 31 December 2014, where the property is held for more than seven years. Where such property is held for more than seven years, the CGT relevant to that seven-year period will not attract capital gains tax on a future disposal.
Tax planning action 1: If you can
identify assets which you feel will
appreciate in value over time, availing
of this capital gains tax incentive may
be worthwhile. If you have purchased
land since 6 December 2011, be aware
of the capital gains tax relief attaching
to it.
2. Land leasing
Certain farmland leases are exempt from income tax. This is a very attractive income tax relief for those wishing to lease their land for a period of five years or more. The level of income tax exemption depends on the length of the lease, as shown in table 1.
Where the lease includes the land and EU Single Farm Payment entitlements, the rental income attributable to the EU Single Farm Payment also qualifies for the relief, subject to the appropriate ceiling.
The following conditions apply:
• The lease must be in writing or evidenced in writing;• The land must be leased to an individual or individuals who are unconnected with the lessor and who use the land for the purposes of farming.The income of joint tenants, such as husband and wife, is treated separately, whether they are jointly assessed or not. Joint lessors are entitled to separate maximum exemptions of the appropriate amount against their respective shares of the rent from the qualifying lease.
Tax planning action 2: Could you
convert current rental income which is
taxable into tax-free income?
3. Tax relief on sales/voluntary transfers to someone other than a child
The purpose of this measure, operative from 1 January 2014, is to encourage older farmers who do not have a child to succeed to their farm business to either (a) lease out their farmland over the long term to younger farmers, or (b) sell their land.
There is a special capital gains tax retirement relief on disposals of farmland, up to a ceiling of €750,000 (€500,000 if over 66 years of age) where the land was originally farmed and owned for a continuous period of 10 years or more and subsequently let for a period of less than 15 years.
Up to 1 January 2014, this relief only applied where the sale/transfer was to a child of the landowner.
Relief on non-child transfers/sales after 1 January 2014
This valuable relief, with effect from 1 January 2014, is being extended to transfers other than to a child, provided that:
• The land was owned by the transferor/vendor and used by him/her for the purposes of farming for a period of not less than 10 years prior to the letting of the land, and;• The land was let for a period of less than 15 years to a person(s) for the purposes of farming, and;• Each letting of the land was for a period of not less than five consecutive years.Tax planning actions 3: If letting land
which you hope to sell in the future,
and you wish to avail of this relief,
ensure letting periods are of not less
than five consecutive years’ duration
and the combined leases should not
be for a period exceeding 15 years.
Tax planning actions 4: If selling land
which was/is leased by you, check to
see if you can avail of this valuable
relief.
There are complex rules surrounding this relief – seek sound professional advice regarding your entitlement to it.
4. Capital gains tax farm
restructuring relief
This is a relief from capital gains tax applying to a sale, purchase or exchange of agricultural land in the period 1 January 2013 to 31 December 2015 where the transactions are for farm restructuring purposes.
The conditions attaching are as follows:
• The initial transaction occurs within the period 1 January 2013 to 31 December 2015.• The matching sale or purchase must occur within 24 months of the initial transaction.• Where it is a swap or exchange of land, both transactions must occur within the period 1 January 2013 to 31 December 2015.• The sale, purchase, exchange or swap must be between farmers who spend not less than 50% of their normal working time farming.• Where joint tenants are involved, each joint owner must satisfy the time requirement of spending not less than 50% of their normal working time farming.• All transactions seeking relief must be certified by Teagasc as qualifying for the relief.Where the sale takes place before the purchase, capital gains tax will have to be paid in the normal manner and a claim for the refund of the excess capital gains tax paid can be made at the time of the subsequent purchase.
What is farm restructuring?
In practice, the sale of an existing farm and the replacement of it by the purchase of another farm is not regarded as farm restructuring. To qualify for this relief, the interactions of the sale, purchase or exchange should together result in an overall reduction in the distance between land parcels comprised in the farm, including land that has been leased for at least two years with a minimum of five years to run.
Does all land qualify for the relief?
No, the land must comply with the following conditions:
1. It must be situated in the State and;2. It must be agricultural land, which excludes afforested land, peat land or habitable dwellings.Tax planning action 5: If you are
currently in the process of, or plan to
carry out farm restructuring, build this
very important relief into your plan.
5. Lands held in joint tenancy
A special capital gains tax relief, which was available to partnerships on the breaking of a joint tenancy, expired on 31 December 2013.
With effect from 1 January 2014, the breaking of all joint tenancies will be subject to capital gains tax (except tenancies with spouses).
Tax planning action 6: If you own land
jointly with someone other than your
spouse, don’t break the tenancy
without seeking professional tax
advice as the breaking of this tenancy
is subject to capital gains tax.
6. Farmers over 66 years disposing of land from 1 January 2014
Non-family land sales and
transfers
The €750,000 capital gains tax retirement relief, which applies to the sale or transfer of land, sites etc. to non-family members, was reduced to €500,000 for those transfers occurring after 31 December 2013 by farmers aged over 66 years.
Intra-family land sales/transfers
From 1 January 2014, a €3m ceiling on the intra-family retirement relief will apply to transfers/sales by farmers aged over 66 years of age.
Tax planning action 7: Landowner’s
66th birthday, from 1 January 2014,
has now become significant for
capital gains tax and estate planning
– re-examine your farm transfer plan
in light of this recent change.
7. Gift/inheritance tax – free use of land deemed to be a gift
If you have the use of someone else’s land and are not paying them the rent the land would secure if let on the open market, then you are deemed to have received a gift from that person.
How is the gift quantified?
The difference between the rent the property would secure if let on the open market and the amount you paid is deemed to be the amount of the gift.
Example:
John Farmer is farming his father’s land. It consists of 200 acres and the open market rental value for similar type of land in the locality is €200 per acre. He is not paying his father any rent for the land.
The deemed gift is therefore €200 x 200 = €40,000 (minus €3,000 annual gift tax exemption).
If this situation is allowed to continue over a number of years, the tax exempt amount John can receive from his father will be drastically eroded by the time his father transfers the land to him.
Tax planning action 8: If you are not
paying full market rent for any land
you have the use of, speak with your
accountant about it.
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