“I am interested in buying a farm in another county. I have done a deal with two neighbouring farmers interested in buying the home farm and an outfarm. I understand that I won’t have to pay capital gains tax (CGT) on the land I am going to sell as I will be using the money from the sale to buy the farm in the other county. What should I be mindful of?”

Not all whole farm sales qualify. From 29 January 2015, the sale of a whole agricultural holding and the replacement of it by the purchase of another agricultural holding is farm restructuring for the purposes of the relief.

However, the interaction of the sale and purchase must together result in an overall reduction in the distance between parcels in the farm, thereby leading to a reduction in the fragmentation of the farm and an improvement in the operation and viability of the consolidated farm. Therefore, an agricultural land holding must consist of a minimum of two separate land parcels in order to be considered eligible for the relief.

ADVERTISEMENT

You mention that you have an outfarm and you propose selling this and the home farm in order to purchase the farm in the other county. Accordingly, it would appear that the transaction would result in an overall reduction between the parcels comprised in the farm and consequently be eligible for relief.

If your farm consisted entirely of one block of land which you were selling to purchase another farm in one block of land, it is questionable whether it would qualify for the relief as it would not result in an overall reduction in the distance between the parcels in the farm.

It is worth mentioning that land held under a lease will count towards determining whether there is an overall reduction in distance between the parcels in the farm. For leased land to qualify, it must have been leased for a period of at least two years immediately prior to the submission of an application to Teagasc for a farm restructuring certificate and the lease must have a minimum of five years to run.

Timing of sale

The initial sale/purchase for the purposes of restructuring must occur between 1 January 2013 and 31 December 2016. The subsequent sale/purchase must occur within 24 months of the initial sale/purchase. Thus where a farm was disposed/purchased before 29 January 2015 (the date the relief was extended to whole farms) the transaction should qualify for the relief, provided the subsequent sale/disposal occurs within 24 months of the initial sale/disposal.

CGT is payable on a gain arising from the disposal, currently at the rate of 33%. However, full relief from CGT will be given where the price paid for replacement land is greater than the price received for selling land and restructuring relief is claimed. Where the price paid for replacement land is less, partial relief will be given.

Conditional contracts

If the sale takes place before the purchase, CGT will have to be paid in the normal manner and a claim for a refund of the CGT paid can be made to Revenue at the time of the subsequent purchase.

If the purchase takes place before the sale, then the relief will be given at the time of sale subject to both transactions meeting the eligibility criteria for the relief.

From a cashflow and security of tenure point of view, it might be worth making the contract in which you sell the land conditional on you being able to purchase the other land. That way, if the purchase of the other farm falls through for any reason, you will not be obliged to sell your own land as the contract would not take effect. You should time the completion of the contract for the sale of the land prior to the completion of the purchase of the land so that you have the proceeds from the sale available to buy the other land rather than have to organise a bridging loan.

The date of disposal of the land will determine the date that CGT is due, if the sale occurs before the purchase of the other land. The date of disposal is the date of signing of an unconditional contract.

For disposals between 1 January and 30 November, CGT is due by 15 December in the same tax year. For disposals between 1 December and 31 December, CGT is due by 31 January in the following tax year. Thus, once the sale and purchase are completed between 1 January and 30 November of the same year, a refund situation should not arise.

Land held jointly

If the land is held jointly with your spouse, you should still qualify assuming one of you is a farmer, ie you spend not less than 50% of your working time farming.

It is accepted that an individual who carries on farming through a limited company should qualify as a farmer for the purposes of availing of the relief. However, the individual must be a working director in the company and be either a qualified farmer or spend not less than 50% of his/her normal working time farming the land and must be the main shareholder in the company or own all the shares in the company equally or with his/her spouse/civil partner.

Restrictions

The land must be agricultural land. As the definition of agricultural land does not include afforested land, peat land or habitable dwellings, the value of these should be deducted when claiming the relief. Further, while farm buildings originally qualified for the relief, the relief is now restricted to agricultural land only. The sale, purchase or exchange of agricultural land for farm restructuring will be subject to stamp duty.

In order to claim restructuring relief, you must submit documentation to Teagasc, which will assess the application and grant a Farm Restructuring Certificate if it complies with the conditions of the relief. However, the granting of the certificate does not give an automatic entitlement to the relief and it is the farmer’s responsibility to ensure that the transactions do qualify for the relief.