I am a 60-year-old active farmer who inherited an 80-acre farm plus a holiday home in 1992. The Revenue Commissioners valued the house at £37,000, which translates to around €47,000. I have rented this property in the subsequent years. I’m now in the process of selling the property for €150,000. In the recent budget there was talk of a reduced 20% Capital Gains Tax for businesses. Would I qualify for that?

I’m using the proceeds of this sale to purchase eight acres adjoining my farm for €80,000. The question is, if I gifted the house to my son and he purchased the land from the sale of the property, would he still have to pay Capital Gains Tax or would he have to have the property registered in his name over a certain amount of years? He is 20 years old and has no assets, no green cert and works off-farm but will inherit the farm eventually. He works off-farm but could qualify for the 50% more working rule.

Andrew

The budget did introduce a new Capital Gains Tax (CGT) relief for entrepreneurs on disposal of certain qualifying business assets or shares in qualifying companies after 1 January 2016. The new relief provides for a 20% rate of CGT to apply on qualifying gains up to a lifetime limit of €1m

The key word here is qualifying and the Finance Bill clearly states a business consisting of the letting of land or buildings does not qualify. You would also not qualify for retirement relief on the sale, the other key way of reducing your CGT bill.

You said the house was valued at €47,000 in 1992. This value is increased by an indexation factor of 1.406 for CGT purposes. It means the price you paid is taken as (€47,000*1.406) €66.082.

If you are selling it for €150,000, you can take away the costs associated with this. Let’s assume this is €5,000. So the CGT would be €145,000 - €66,082 or €78,918. Taking away €1,270 as your tax-free threshold means you get taxed at 33% on €77,648. This leaves you with a CGT bill of €25,624. If you gifted the house to your son, you would still have to pay the CGT bill even though he would have the proceeds of the house – so that’s a non-runner.

The simplest way, of course, would be to sell the holiday home and pay the tax. You have just over €124,000 afterwards. You could buy the land for €80,000 and still have €44,000 in your bank account.

The big question for me is why are you selling the holiday home? Is it because you do not want to run it anymore or the fact that you want the money to buy the land? The other question is, what does your son really want to do? You say he is going to inherit the farm eventually. If he wants to farm, he should be looking to education to get his green cert at the very least.

Partnership

The other interesting scheme in the budget is the succession farm partnerships. In summary, the partnership will be between at least two partners (you and your son) with provision for profit-sharing between the partners and for the transfer of the farm to the younger farmer. This transfer must take place within a period starting three years to 10 years after the date of the application to register the partnership.

An income tax credit of up to €5,000 a year for five years will be allocated to the partnership and split in accordance with the profit-sharing arrangement between the partners. Your son must be under the age of 40 years when the partnership is formed, so there is plenty of time.

Your son could start his education and form a partnership with you for the farm as part of a planned handover. By going into the partnership, you effectively get an additional €5,000 a year between you and your son for five years – if that is what you want. You also have to look at what income you need in retirement.

One option is that your son buys the land in his name. He could possible get a mortgage over 10 to 15 years to pay it back. This would allow you to keep the holiday home. Your son could even run the holiday home for you and use the income to repay the loan.

The other question it raises is, do you have more than one child? If so, keeping the holiday home would not only continue to provide you with an income when the farm is transferred, but could be gifted to your other children if you so desired. If you did that through inheritance, there would of course be no Capital Gains Tax to pay. So while your initial question was around Capital Gains Tax, the first conversation should really be about succession planning. You should sit down with your wife, son and other children to discuss it. If you feel you need help, there are a number of good people who specialise in facilitating the conversation to allow you to make sure everyone in the family is happy and knows the likely outcome. CL

In brief

• Selling rental properties do not qualify for new reduced CGT relief.

• It does not qualify for retirement relief either.

• The simplest option would be to sell and pay the CGT.

• What income will you need in retirement?

• Look at the new succession family partnerships.

• Start the conversation on succession.