Dear Money Mentor,
We worked hard all our lives, paid our taxes and have been lucky enough to have built up a nice sum of money in land, property and money in the bank. We stepped back from farming over 10 years ago, leasing our land out on a long-term lease.
We have two children. They are both doing well, married with good jobs. While they are not farming at the moment, one has said they would like to return home to farm the land. So here is our difficulty. With so much in assets, we are concerned that if one or, God forbid, both of us go into a nursing home, we could very quickly see the money we worked so hard for evaporate to pay all the bills.
We visited our accountant to see if we were better transferring assets before or after we pass away. However, we came out more confused, as there seems to be as many negatives as positives for the different options.
Money Mentor Writes
You are right. It is complicated. The first thing I would say is to look at the positive side: the fact that you have the problem in the first place. Your work has put you in a good position with assets and options. Another positive is that you are dealing with it – hard as it may seem to be.
In your case, there are two taxes you have to look at:
• Capital gains tax (CGT) for you when you pass on the assets.• Gift tax for your children when they receive them.Capital gains tax
The most important for you is to look at the CGT. This is a tax of 33% on the gain between when you bought and sold the land or property. Too often I have seen older people hand over the assets that have risen in value over the years, only to realise they have a big CGT bill to pay – but no money to pay it.
For example, if you bought 10 acres of land at €1,500/acre, 30 years ago, it would be valued at market price now – say €10,000/acre. Taking allowable inflation (indexation) into account, it would leave a CGT bill of €25,000. And that’s just on 10 acres.
The good news is that you can avoid paying CGT completely when you transfer the farm land by availing of retirement relief.
To get this you must have farmed it for 10 years before you leased it out. Retirement relief can be availed of up to 25 years after you stopped farming, so there is plenty of time for you.
Another way to avoid CGT is to wait until you die to transfer. However, your concern about the nursing home bills or Fair Deal Scheme is what drives many to look to hand over some of their assets earlier, rather than later.
Without going in to too much detail on the Fair Deal scheme in this article, if your yearly income does not meet the bills, they will first take your money in bank accounts and then a percentage of your assets. There is a maximum percentage they can take on the family home, but not on other assets.
Capital Acquisitions Tax
On the children’s side, they have to watch for capital acquisitions tax (CAT) or gift tax, which is also 33% for money gifted over the threshold. The threshold for children is €310,000 at present. That is what you can transfer to each child without tax implications.
With the land, the child who has indicated an interest could qualify for agricultural relief – which reduces the value for calculating by a massive 90%. There are, however, criteria to qualify for this.
So, in summary, you could more easily transfer money and potentially farm land without any CGT risk.
This can be done up to the threshold of €310,000 without any gift tax for each child. It’s more difficult to avoid CGT with other property (shares and houses). The only thing to watch out for is that there is a five-year look-back on the Fair Deal Scheme. That is why it is better to transfer assets when you are still well – and hope you don’t need to go into the scheme for five years.
Small Gifts Add Up
The one thing that you should be doing is using the €3,000 small-gift exemptions to all your advantages. Each calendar year you can gift anyone €3,000 without affecting their gift tax threshold. This might not seem like much, but you can gift €3,000 to each child, their spouse and even their children without any future implications. And so can your husband.
For example it means you can transfer €6,000 to your children and €6,000 to their spouses each year. If your child had two children each you can double that to €24,000. This can add up over a few years and allay your fears for the cash.
If you feel more comfortable, you could ask your children to keep the money in a separate bank account. If they agree, it can then be used to pay your medical bills, if required.
Your children can actually get tax relief at standard rate on medical expenses and at the high rate when they pay the nursing home fees for you. So there is a real saving on both sides if you do end up sick or in a nursing home. CL
In Brief
• Make sure you have enough to live off.• Watch out for capital gains tax on land and houses.• The Fair Deal Scheme has a five-year look back.• Children have to pay gift tax over a €310,000 threshold.• Use the €3,000 small-gift exemption each year to maximum affect.• There is tax relief available if your children pay your medical expenses or nursing home fees.
Dear Money Mentor,
We worked hard all our lives, paid our taxes and have been lucky enough to have built up a nice sum of money in land, property and money in the bank. We stepped back from farming over 10 years ago, leasing our land out on a long-term lease.
We have two children. They are both doing well, married with good jobs. While they are not farming at the moment, one has said they would like to return home to farm the land. So here is our difficulty. With so much in assets, we are concerned that if one or, God forbid, both of us go into a nursing home, we could very quickly see the money we worked so hard for evaporate to pay all the bills.
We visited our accountant to see if we were better transferring assets before or after we pass away. However, we came out more confused, as there seems to be as many negatives as positives for the different options.
Money Mentor Writes
You are right. It is complicated. The first thing I would say is to look at the positive side: the fact that you have the problem in the first place. Your work has put you in a good position with assets and options. Another positive is that you are dealing with it – hard as it may seem to be.
In your case, there are two taxes you have to look at:
• Capital gains tax (CGT) for you when you pass on the assets.• Gift tax for your children when they receive them.Capital gains tax
The most important for you is to look at the CGT. This is a tax of 33% on the gain between when you bought and sold the land or property. Too often I have seen older people hand over the assets that have risen in value over the years, only to realise they have a big CGT bill to pay – but no money to pay it.
For example, if you bought 10 acres of land at €1,500/acre, 30 years ago, it would be valued at market price now – say €10,000/acre. Taking allowable inflation (indexation) into account, it would leave a CGT bill of €25,000. And that’s just on 10 acres.
The good news is that you can avoid paying CGT completely when you transfer the farm land by availing of retirement relief.
To get this you must have farmed it for 10 years before you leased it out. Retirement relief can be availed of up to 25 years after you stopped farming, so there is plenty of time for you.
Another way to avoid CGT is to wait until you die to transfer. However, your concern about the nursing home bills or Fair Deal Scheme is what drives many to look to hand over some of their assets earlier, rather than later.
Without going in to too much detail on the Fair Deal scheme in this article, if your yearly income does not meet the bills, they will first take your money in bank accounts and then a percentage of your assets. There is a maximum percentage they can take on the family home, but not on other assets.
Capital Acquisitions Tax
On the children’s side, they have to watch for capital acquisitions tax (CAT) or gift tax, which is also 33% for money gifted over the threshold. The threshold for children is €310,000 at present. That is what you can transfer to each child without tax implications.
With the land, the child who has indicated an interest could qualify for agricultural relief – which reduces the value for calculating by a massive 90%. There are, however, criteria to qualify for this.
So, in summary, you could more easily transfer money and potentially farm land without any CGT risk.
This can be done up to the threshold of €310,000 without any gift tax for each child. It’s more difficult to avoid CGT with other property (shares and houses). The only thing to watch out for is that there is a five-year look-back on the Fair Deal Scheme. That is why it is better to transfer assets when you are still well – and hope you don’t need to go into the scheme for five years.
Small Gifts Add Up
The one thing that you should be doing is using the €3,000 small-gift exemptions to all your advantages. Each calendar year you can gift anyone €3,000 without affecting their gift tax threshold. This might not seem like much, but you can gift €3,000 to each child, their spouse and even their children without any future implications. And so can your husband.
For example it means you can transfer €6,000 to your children and €6,000 to their spouses each year. If your child had two children each you can double that to €24,000. This can add up over a few years and allay your fears for the cash.
If you feel more comfortable, you could ask your children to keep the money in a separate bank account. If they agree, it can then be used to pay your medical bills, if required.
Your children can actually get tax relief at standard rate on medical expenses and at the high rate when they pay the nursing home fees for you. So there is a real saving on both sides if you do end up sick or in a nursing home. CL
In Brief
• Make sure you have enough to live off.• Watch out for capital gains tax on land and houses.• The Fair Deal Scheme has a five-year look back.• Children have to pay gift tax over a €310,000 threshold.• Use the €3,000 small-gift exemption each year to maximum affect.• There is tax relief available if your children pay your medical expenses or nursing home fees. 
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