For those landowners looking at doing land swaps or selling a piece of outside land to replace it with land closer to the main farm hub, they should act quickly to avail of Capital Gains Tax (CGT) restructuring relief before it is due to run out on 31 December 2016. Further, for those landowners who are renting their land on an annual basis, they should consider entering into a lease for a minimum of five years before the end of the year to continue to avail of CGT retirement relief.

Farm restructuring relief

CGT currently at the rate of 33% is payable on a gain arising from the disposal of land which includes swapping land parcels. However, full relief from CGT may be given if a person qualifies for restructuring relief and the price paid for replacement land is greater than the price received for selling land. Where the price paid for replacement land is less, partial relief will be given.

From 29 January 2015, the sale of a whole agricultural holding and the replacement of it by the purchase of another agricultural holding is farm restructuring for the purposes of the relief. However, the interaction of the sale and purchase must together result in an overall reduction in the distance between parcels comprised in the farm. Therefore, an agricultural land holding must consist of a minimum of two separate land parcels in order to be considered eligible for the relief. For example, if you have an out-farm and you propose selling this and the home farm in order to purchase a farm in another county, if this results in an overall reduction between the parcels comprised in the farm, the sale should be eligible for restructuring relief.

If your farm consisted entirely of one block of land, which you were selling to purchase a bigger block, it is unlikely that it will qualify for the relief. It is worth mentioning that land held under a lease will count towards determining whether there is an overall reduction in distance between the parcels comprised in the farm. For leased land to qualify, the leased land must have been leased for a period of at least two years immediately before the submission of an application to Teagasc for a farm restructuring certificate and the lease must have a minimum of five years to run.

Timing

The initial sale/purchase for the purposes of restructuring must occur between 1 January 2013 and 31 December 2016. The subsequent sale/purchase must occur within 24 months of the initial sale/purchase.

If the sale takes place before the purchase, CGT will have to be paid in the normal manner and a claim for a refund of the CGT paid can be made to Revenue at the time of the subsequent purchase. If the purchase takes place before the sale, then the relief will be given at the time of sale subject to both transactions meeting the eligibility criteria for the relief.

From a cashflow and security of tenure point of view, it might be worth making the contract in which you sell the land conditional on you being able to purchase the other land. That way, if the purchase of the other farm falls through for any reason, you will not be obliged to sell your own land as the contract would not take effect.

You should time the completion of the contract for the sale of the land prior to the completion of the purchase of the land, so that you have the proceeds from the sale available to buy the other land rather than have to organise a bridging loan.

Retirement relief

If a landowner has land rented which they may wish to sell in years to come, they should ensure that they enter into a lease before 31 December 2016 for a minimum of five years. The benefit of this is to retain an entitlement to claim CGT retirement relief. If a landowner is entitled to the relief, they will pay no CGT on a sale of land provided the value of the farm being sold does not exceed €750,000 (or €500,000 where the person selling the land is 66 years of age or over). Where the sales proceeds exceed €750,000 (or €500,000 for those landowners aged 66 years of age or over), partial relief is available. The limits are for a lifetime, so that if they are exceeded a clawback of relief previously claimed may occur.

In order to claim the relief, the person transferring the farm must be 55 years of age or over and have owned and farmed the land for 10 years prior to transfer. While the legislation provides that a person can continue to avail of the relief, if they lease the land after farming it for 10 years, each lease must be for a minimum period of five years and the lease must be entered into by 31 December 2016. Thereafter, the landowner can continue to lease the land for up to 25 years and still be eligible to claim CGT retirement relief provided each lease is for a minimum of five years.