In addition to carrying on a farming trade, some farmers may also hold investment assets, such as property and shares. While most farmers will be aware of the tax implications of the income earned from a farming trade, it is also important to be conscious that capital gains tax (CGT) may be due on the disposal of investment assets.

The gain on the disposal of an asset is calculated by comparing the cost of acquisition with the disposal proceeds. As the current rate of CGT is 33%, a farmer selling an asset can incur a significant tax liability.

There are a number of reliefs, such as retirement relief and farm restructuring relief, which can reduce or even eliminate this charge to CGT.

Retirement relief applies to certain disposals of business assets where the disposing party is over the age of 55. Where the relief applies, there will be no charge to CGT on the disposal. A number of conditions must be met for an individual to be eligible for the relief.

For instance, if you are between the ages of 55 and 66 and sell your qualifying assets for more than €750,000, a full exemption from CGT will not be given but, instead, only marginal relief will apply.

If you are over the age of 66, marginal relief will be given if the consideration exceeds €500,000.

Farm restructuring

Farm restructuring relief was introduced by the Finance Act 2013.

Where there is a sale, purchase or exchange of agricultural land between 1 January 2013 and 31 December 2015 and the subsequent sale or purchase occurs within 24 months, provided that the consideration for the purchase or exchange is equal to or greater than the consideration for the sale or exchange, full relief for the CGT on the initial disposal will be given.

Even where the above reliefs do not apply, there is still scope to minimise a CGT liability by making use of the more general capital gains tax provisions.

The first €1,270 of every person’s gain each year is exempt from CGT. In addition, incidental costs and expenses which are incurred in relation to the acquisition or disposal of an asset may be taken into account in calculating the gain, provided that the expenses in question are incurred wholly and exclusively for the acquisition or for the disposal.

Costs such as stamp duty and solicitors’ fees will usually be payable where an individual buys property. Such costs may be added to the purchase consideration to reduce the gain on disposal.

Bearing in mind that stamp duty previously applied at rates of up to 9%, adding this cost to the purchase consideration can often represent a significant saving for a taxpayer.

Similarly, costs of disposal and enhancement expenditure can also be taken into account in calculating a person’s gain.

Where an asset is disposed of which was acquired prior to 2003, indexation relief may apply. This relief provides for the effect of inflation and can give a substantial increase to the base cost of a property and reduce the taxable gain on sale.

Loss relief

Loss relief may also be available which allows a person to offset the loss arising on the disposal of one asset against the gain on another. Losses arising in the same tax year, as well as losses from previous years, may be utilised in this way.

Care should be taken when attempting to calculate your CGT liability as there are a large number of rules which restrict the available reliefs.

For example, where a person incurs a loss on a disposal to a connected party (such as a relative or business partner), then that loss may only be used to offset a future gain arising on a disposal of the same connected party.

Finally, once the tax liability is calculated, it must also be paid over on time to the Revenue to avoid interest and penalties arising.

*Bernard Doherty is a member of Chartered Accountants Ireland and a fellow of the Irish Taxation Institute.