Question: I’ve sold a couple of sites over the years, and there was never any major tax bill. A few years back, I sold a larger parcel to a local developer, and that was fine too.

Recently, I sold a site to a neighbour and expected something similar, perhaps Capital Gains Tax (CGT) of 33% on any profit. Instead, the bill came back far higher than I anticipated. I genuinely don’t understand why this sale has been treated so differently from the others. What has changed and why is the tax so much higher this time around?

Answer: When you sell land at a profit, the gain is taxed. That tax is called Capital Gains Tax (CGT) and the rate is 33%. So your thinking was right: 33% on the profit. What you were not expecting was the size of that profit, and the fact that the relief that kept the earlier bills down is no longer available in the same way.

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Those earlier sales give you the clue as to what has changed. On those disposals, Retirement Relief most likely covered the tax. Retirement Relief is available to farmers aged 55 and over when they sell or transfer qualifying farm assets, and where it applies it can wipe out the Capital Gains Tax bill entirely. The fact that there was little or no tax on those sales was not the normal outcome for a site sale. It was Retirement Relief doing its job.

Proceeds

This time, the proceeds have most likely pushed above the €750,000 threshold (€500,000 if aged over 70), and the relief is no longer available in the same way. The threshold is based on sales proceeds, not profit, and is a lifetime running total, so the earlier site sales and the parcel sold to the developer all count towards it.

You pay CGT at the lower rate of:

  • 50% of the amount by which the total consideration exceeds €750,000 or
  • at 33% on the chargeable gains to date.

    • However, the 33% route requires you to revisit earlier sales and pay CGT on profits from them as well, even if you thought those sales were already settled. This is why the effective tax rate on your most recent sale feels much higher than expected – it’s not just the current transaction, but also catching up on profits that were previously relieved. The shock comes from having to pay tax not only on this sale, but also on earlier sales, pushing the overall tax well above the standard 33% rate.

    The size of the profit on this sale is the other part of the answer. A site with planning permission, or real planning potential, does not sell at farmland value. It sells at what someone will pay for it as a building site. The gap between what that ground was worth as farmland and what your neighbour paid for it is what Revenue is taxing. Even on a small site in a decent location, that gap can be very large. Applying any rate to a large profit produces a large bill. The rate is not the problem. The profit is.

    The fact that there was little or no tax on those sales was not the normal outcome for a site sale. It was Retirement Relief doing its job

    The relief most people ask about at this point is Revised Entrepreneur Relief, which brings Capital Gains Tax down to 10% on qualifying business sales. It does not apply to development land. That door is closed.

    Revenue could also treat site sales as a trading activity rather than a capital disposal, resulting in income tax rather than CGT. For a farmer selling sites off land they have always owned, that risk is low. Where it becomes a real concern is where someone has been buying and selling land regularly, because that starts to look more like a business than a series of once-off sales. In a case like yours, it is unlikely, but it is always worth being aware of.

    Tax outcome

    The hard truth is that the tax outcome on a site sale is nearly always decided before the sale is agreed. Once contracts are signed and the money is paid, the position is set. What might have made a difference is looking at cumulative proceeds, considering timing and reviewing available options before agreeing a price, not after.

    The bill you have received is not the result of anything going wrong. It is what happens when Retirement Relief runs out, the profit is driven by development value, and the only options left both cost more than you expected.

    The earlier sales were painless because the relief was there in full. This one is different because the running total of what you have sold has changed the picture. Get advice before you agree a price on a site, because once the deal is done, there is very little anyone can do.

    In Short

  • Reduce or eliminate CGT on qualifying farm asset disposals.
  • For disposals outside the family, the threshold is €750,000 (€500,000 if over 70).
  • The limit is based on total sale proceeds, not profit.
  • Earlier qualifying sales count towards the threshold.
  • Once exceeded, tax liabilities can increase sharply.

    • Marty Murphy is head of tax at ifac, the professional services firm for farming, food and agribusiness.