My parents inherited 50 acres 35 years ago. They farmed it for 10 years and then let it out on a conacre basis for the last 26 years. There is a farm house on the land. My parents are looking at handing over the land to us, although I might rent it out as well. I have done my green cert in farming but I will be 40 later this year. What would the cost of handing over the land be for both my parents and I? Do I have to pay stamp duty once I’m over the age of 40?

David

David, your situation is interesting in that it brings up a number of key points. Firstly, your age and stamp duty. The age for stamp duty exemption for young, trained farmers is 35. So you missed that a few years ago. However, since stamp duty is now down to 2%, the bill is a lot less than in the past when it was as high as 6%. Let’s assume the land is worth €10,000 per acre of the total value of €500,000. This would mean the stamp duty is €10,000. There is a reduced rate of 1% when it is transferred to family members, so it would be just €5,000.

On your side is the fact that you do not have many assets, which means you will most likely qualify for agricultural tax relief. This would reduce the value of the gift by 90%, bringing it down to just €50,000. The value of the house can also be included under agriculture relief, so its value would also be reduced by 90% if it was transferred at the same time. However, under the budget changes in 2014, you must either farm the land yourself for six years or immediately move into a long-term lease with a term over five years. So, either way, it is the end of conacre for the land, which is no harm.

So the cost to you will be small. I am more concerned of the potential cost to you parents if they don’t pass it on to you or move into a long-term lease before 31 December 2016. The reason is that they would lose the opportunity to get retirement relief on the transaction after that. Retirement relief basically gives a capital gains tax exemption when transferring a business or qualifying assets. Let’s look first at the capital gains tax for your parents if they did not get retirement relief.

Land prices were around €5,000/acre when they inherited it in 1990. So the first thing is to apply the indexation factor of 1.178, which brings the value up to €5,890 per acre for capital gains tax purposes.

Taking the current value at €10,000, it means a capital gain of €4,110 per acre. This is a massive €204,230 after deducting the yearly allowance of €1,270. It means at 33% CGT, your parents would be facing a bill of €67,396. Up until last year, the fact that they had rented it out for more the 15 years meant they were not eligible for the relief and would have to pay the bill.

But they have got lucky due to the agritaxation review and changes in the 2015 budget. It said that if the land rented out under conacre arrangements by your parents is either transferred to you before 31 December 2016 or is moved into a long-term lease of at least five years, your parents will have a chance to get the relief. Leave it in conacre after 31 December 2016 and there is no getting out of the bill if they want to gift it to you.

The one other condition is that they must have farmed the land for 10 years before they started renting it out. You said your parent did this.

Basically, the window of opportunity was made for the situation your parents are in, so it is vital they act before it closes. If they move into a long-term lease they must transfer or sell it afterwards to get the relief. Depending on what assets they own and what income they have, it might be best to transfer it now. The reason I say this is that you might grow your assets in the meantime to a situation where the land and house might be less than 80% of you overall assets when they do go to transfer. This means you might lose out on agricultural relief which could end up costing you a lot of tax in the years ahead.