While the headline details are revealed on budget day, there are often some equally interesting documents published at the time that can go under the radar.
This year is no different to any other year.
Budget 2021 saw a 121-page tax expenditures report, which incorporated outcomes of certain tax expenditures and tax-related reviews completed since October 2019.
The Government’s tax expenditures, in layman’s terms, are things such as tax exemptions, allowances and credits. They are general Government policy instruments and are used to promote specific social or economic policies and are directly related to direct spending.
Property sector
Member states are now obliged to publish information on the impact of tax expenditures because the fragmented nature of tax expenditures used to give rise to a lack of transparency. This was particularly obvious in Ireland in the property sector, where allowances and reliefs continued long past their sell-by date and contributed to the over-reliance on the tax take from the property sector between 2004 and 2009.
The reliefs equate to the revenue foregone in the state
Both the Department of Finance and Revenue use the revenue foregone method to estimate the costs of tax expenditure.
Significantly, stamp duty accounts for €1.988bn of tax expenditures, being 24% of the reliefs.
The reliefs equate to the revenue foregone in the state.
Here, we take a particular interest in the sections relating directly to farming in this year’s expenditure report, namely consanguinity relief and consolidation relief.
Review of Stamp Duty Consanguinity Relief
Consanguinity relief is a stamp duty relief that provides for a rate of 1% of stamp duty to apply to certain transactions on agricultural land. It applies to transactions between close relatives, eg mother to son.
It was last updated on 25 December 2017 and applied at the rate of 1%, subject to a number of important conditions being met:
Owner farmed the land for a period of not less than six years; or,Lease it for a period of not less than six years to a person who will farm the land and the person who farms the land must be the holder of an agricultural qualification, or, spend 50% of their time farming the land.Revenue will also allow the relief if the land is leased to a partnership or to a company. Failure to have this scheme in place would have resulted in a rate of 7.5% stamp duty.
Boosting the rate of inter-generational transfer was and is a long-standing policy objective of the Government and the EU, so therefore consanguinity relief is extremely important.
The cost of revenue forgone on this claim last year was €28.76m.
All farming bodies supported this and when the expenditure report was published, a number of options existed:
Not to extend it. This was ruled out.To extend the relief for a further three years – which is the option the Government went with. If extended, restore a previous age cap of 67 for transfers removed in Finance Act 2017 or introduce a newer one.This came as a surprise to people but, as a result of it, the following actions were recommended:
Extend the relief which will be provided for in Finance Bill 2020.Examine the age limit for transferors. The case for introducing an age limit was proposed and should be examined jointly by the Department of Agriculture and Marine and Finance in 2021, with a view to making any amendments.
Therefore it looks like there will be an age limit, not necessarily 67, introduced in the Finance Bill 2021.
Farm consolidation relief
Farm consolidation relief is a very valuable relief that provides for a 1% rate of stamp duty where a farm restructuring certificate was obtained.
It was due to lapse at the end of 2020 but now has been extended. The expenditure report on the budget gives an extremely valuable insight into it.
Consolidation relief gives full relief from Capital Gains Tax (CGT)/stamp duty when the purchase price of the parcel of land exceeds the sale price, or partial relief where it is less than it.
Some 45 people took up the relief in 2018 and 85 people used it in 2019.
The relief was extended a number of years ago to bring in stamp duty at a rate of 1% for any land over and above the consolidated amount.
A number of recommendations were outlined in the tax expenditures report, these being:
Extend for three years.Extend for two years, and,Do not extend the relief.The Department of Finance decided to extend it for two years on the basis that it brought the expiry date for the relief into line with the CGT relief.
However, it has to be reviewed in the context of CAP and the Agricultural Block Exemption Regulation, to decide whether it is viewed as a state aid or not. Other reliefs that applied were the extension of the accelerated capital allowances regime for a period of three years. However, a recommendation was made that the accelerated capital allowances be looked at in light of measuring the energy saving the equipment made. This will mean that this will be reviewed and could be linked to energy saving in the future.
The Finance Bill 2020, which is being published on Thursday 22 October, will bring in the technical changes as proposed.
While the headline details are revealed on budget day, there are often some equally interesting documents published at the time that can go under the radar.
This year is no different to any other year.
Budget 2021 saw a 121-page tax expenditures report, which incorporated outcomes of certain tax expenditures and tax-related reviews completed since October 2019.
The Government’s tax expenditures, in layman’s terms, are things such as tax exemptions, allowances and credits. They are general Government policy instruments and are used to promote specific social or economic policies and are directly related to direct spending.
Property sector
Member states are now obliged to publish information on the impact of tax expenditures because the fragmented nature of tax expenditures used to give rise to a lack of transparency. This was particularly obvious in Ireland in the property sector, where allowances and reliefs continued long past their sell-by date and contributed to the over-reliance on the tax take from the property sector between 2004 and 2009.
The reliefs equate to the revenue foregone in the state
Both the Department of Finance and Revenue use the revenue foregone method to estimate the costs of tax expenditure.
Significantly, stamp duty accounts for €1.988bn of tax expenditures, being 24% of the reliefs.
The reliefs equate to the revenue foregone in the state.
Here, we take a particular interest in the sections relating directly to farming in this year’s expenditure report, namely consanguinity relief and consolidation relief.
Review of Stamp Duty Consanguinity Relief
Consanguinity relief is a stamp duty relief that provides for a rate of 1% of stamp duty to apply to certain transactions on agricultural land. It applies to transactions between close relatives, eg mother to son.
It was last updated on 25 December 2017 and applied at the rate of 1%, subject to a number of important conditions being met:
Owner farmed the land for a period of not less than six years; or,Lease it for a period of not less than six years to a person who will farm the land and the person who farms the land must be the holder of an agricultural qualification, or, spend 50% of their time farming the land.Revenue will also allow the relief if the land is leased to a partnership or to a company. Failure to have this scheme in place would have resulted in a rate of 7.5% stamp duty.
Boosting the rate of inter-generational transfer was and is a long-standing policy objective of the Government and the EU, so therefore consanguinity relief is extremely important.
The cost of revenue forgone on this claim last year was €28.76m.
All farming bodies supported this and when the expenditure report was published, a number of options existed:
Not to extend it. This was ruled out.To extend the relief for a further three years – which is the option the Government went with. If extended, restore a previous age cap of 67 for transfers removed in Finance Act 2017 or introduce a newer one.This came as a surprise to people but, as a result of it, the following actions were recommended:
Extend the relief which will be provided for in Finance Bill 2020.Examine the age limit for transferors. The case for introducing an age limit was proposed and should be examined jointly by the Department of Agriculture and Marine and Finance in 2021, with a view to making any amendments.
Therefore it looks like there will be an age limit, not necessarily 67, introduced in the Finance Bill 2021.
Farm consolidation relief
Farm consolidation relief is a very valuable relief that provides for a 1% rate of stamp duty where a farm restructuring certificate was obtained.
It was due to lapse at the end of 2020 but now has been extended. The expenditure report on the budget gives an extremely valuable insight into it.
Consolidation relief gives full relief from Capital Gains Tax (CGT)/stamp duty when the purchase price of the parcel of land exceeds the sale price, or partial relief where it is less than it.
Some 45 people took up the relief in 2018 and 85 people used it in 2019.
The relief was extended a number of years ago to bring in stamp duty at a rate of 1% for any land over and above the consolidated amount.
A number of recommendations were outlined in the tax expenditures report, these being:
Extend for three years.Extend for two years, and,Do not extend the relief.The Department of Finance decided to extend it for two years on the basis that it brought the expiry date for the relief into line with the CGT relief.
However, it has to be reviewed in the context of CAP and the Agricultural Block Exemption Regulation, to decide whether it is viewed as a state aid or not. Other reliefs that applied were the extension of the accelerated capital allowances regime for a period of three years. However, a recommendation was made that the accelerated capital allowances be looked at in light of measuring the energy saving the equipment made. This will mean that this will be reviewed and could be linked to energy saving in the future.
The Finance Bill 2020, which is being published on Thursday 22 October, will bring in the technical changes as proposed.
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