“I am considering leasing out part of my farm in the long term as it is a great incentive to get the rent and entitlements tax-free. The amount payable under the lease — ie the rent and value of my Basic Payment Scheme — is greater than the amount I can get tax-free under a five-year lease. I was thus considering transferring the land into the joint names of myself and my wife to double the amount I can get tax-free. Are there any negative consequences of doing this?”
With effect from 1 January 2015, the income that may be exempted under a qualifying long-term lease for five or six years is €18,000. If the land is owned jointly with a spouse, each person is entitled to the annual exempt amount, ie €36,000 in total. The income that may be exempted includes rent and the value of any Basic Payment Scheme entitlements paid back to the owner of the land under the lease. The amount payable under the lease remains subject to PRSI and USC.
In general, transfers of assets between spouses or civil partners living together in a year of assessment are not treated as disposals for Capital Gains Tax (CGT) purposes.
Instead, the spouse or civil partner receiving the asset is treated as having acquired it at the same time and for the same consideration as the transferring spouse or civil partner originally acquired it.
Further transfers of property between spouses and civil partners are generally exempt from stamp duty. Thus, CGT and stamp duty should not arise in the context of putting the land into joint names.
Transferring land to child
Putting land in joint names may affect succession plans. If you plan to transfer this land to a child or indeed sell it on the open market, the availability of CGT retirement relief generally means that the asset can be transferred without triggering CGT.
In order to claim CGT retirement relief, the person disposing of the land must be 55 years of age or over and have owned and farmed the land for 10 years prior to the transfer. You can lease the land out for up to 25 years and still claim CGT retirement relief, but you must have owned and farmed the land for 10 years prior to the first lease. If you transfer the ownership of the land into joint names and then lease it, your spouse would not have farmed the land for 10 years prior to the first lease and consequently would not be entitled to claim CGT retirement relief in respect of her joint share in the land.
While the rules provide that a spouse can step into the shoes of the other spouse in terms of the 10-year ownership requirement, the same does not apply in terms of the 10-year usage requirement. A spouse can only step into the shoes of the other spouse in terms of the 10-year usage requirement in a death situation.
As CGT does not arise where assets are transferred under a will, to avoid having to pay CGT on your wife’s portion of the land, it may be necessary to leave the property under both your wills to the ultimate successor rather than doing a lifetime transfer. If you decide to transfer it during your life and your wife is not entitled to claim CGT retirement relief in respect of her share, CGT will be payable, currently at 33% on half the gain on the property, ie the difference in the market value of the property at the time of transfer and the value when you originally acquired the property.
Sale of land and CGT retirement relief
There are two types of disposals in which CGT retirement relief can be availed of:
Disposals within family of the business or farm.Disposals outside the family of the business or farm.In the context of disposals within the family of the farm, the amount of CGT retirement relief is unlimited, until the parent reaches the age of 66 years when a €3m limit applies.
In the context of disposals outside the family of the farm, such as selling a site in the open market, the amount of the relief is capped at €750,000 (or €500,000 where the farmer sells the land when he is 66 years of age or over).
While a disposal of assets between a husband and wife is normally regarded as being at such a figure as to give no gain/no loss on the disposal; for the purpose of CGT retirement relief on a disposal of assets outside the family, such disposals are taken into account at market value in calculating the total aggregate disposal proceeds.
The figure of €750,000/ €500,000 is a lifetime limit for the individual taxpayer for all disposals of qualifying assets made after he has reached the age of 55 years. So, if you are 55 years of age or over when you transfer your interest in the land into the joint names of you and your spouse, it will use up a portion of your €750,000/€500,000 tax-free limit for availing of retirement relief on disposals outside the family.
For example, if you decided to sell a portion of your land and the proceeds of disposal were €250,000 and you were 55 years of age or over and had owned and farmed the land for 10 years before your first leased it, you could avail of CGT retirement relief on the sale and pay no CGT.
If you then transfer your interest in other land into the joint names of you and your wife and the value of the interest transferred to your wife exceeds €500,000, it may result in a clawback of the retirement relief claimed on the earlier transfer. Therefore, it would be important to clarify whether you have claimed CGT retirement relief already or whether you plan to do so in the future and the effect transferring the land to your wife might have. If you have not sold land after reaching 55 years and do not plan on doing so, then you need not concern yourself too much with this aspect.
“I am considering leasing out part of my farm in the long term as it is a great incentive to get the rent and entitlements tax-free. The amount payable under the lease — ie the rent and value of my Basic Payment Scheme — is greater than the amount I can get tax-free under a five-year lease. I was thus considering transferring the land into the joint names of myself and my wife to double the amount I can get tax-free. Are there any negative consequences of doing this?”
With effect from 1 January 2015, the income that may be exempted under a qualifying long-term lease for five or six years is €18,000. If the land is owned jointly with a spouse, each person is entitled to the annual exempt amount, ie €36,000 in total. The income that may be exempted includes rent and the value of any Basic Payment Scheme entitlements paid back to the owner of the land under the lease. The amount payable under the lease remains subject to PRSI and USC.
In general, transfers of assets between spouses or civil partners living together in a year of assessment are not treated as disposals for Capital Gains Tax (CGT) purposes.
Instead, the spouse or civil partner receiving the asset is treated as having acquired it at the same time and for the same consideration as the transferring spouse or civil partner originally acquired it.
Further transfers of property between spouses and civil partners are generally exempt from stamp duty. Thus, CGT and stamp duty should not arise in the context of putting the land into joint names.
Transferring land to child
Putting land in joint names may affect succession plans. If you plan to transfer this land to a child or indeed sell it on the open market, the availability of CGT retirement relief generally means that the asset can be transferred without triggering CGT.
In order to claim CGT retirement relief, the person disposing of the land must be 55 years of age or over and have owned and farmed the land for 10 years prior to the transfer. You can lease the land out for up to 25 years and still claim CGT retirement relief, but you must have owned and farmed the land for 10 years prior to the first lease. If you transfer the ownership of the land into joint names and then lease it, your spouse would not have farmed the land for 10 years prior to the first lease and consequently would not be entitled to claim CGT retirement relief in respect of her joint share in the land.
While the rules provide that a spouse can step into the shoes of the other spouse in terms of the 10-year ownership requirement, the same does not apply in terms of the 10-year usage requirement. A spouse can only step into the shoes of the other spouse in terms of the 10-year usage requirement in a death situation.
As CGT does not arise where assets are transferred under a will, to avoid having to pay CGT on your wife’s portion of the land, it may be necessary to leave the property under both your wills to the ultimate successor rather than doing a lifetime transfer. If you decide to transfer it during your life and your wife is not entitled to claim CGT retirement relief in respect of her share, CGT will be payable, currently at 33% on half the gain on the property, ie the difference in the market value of the property at the time of transfer and the value when you originally acquired the property.
Sale of land and CGT retirement relief
There are two types of disposals in which CGT retirement relief can be availed of:
Disposals within family of the business or farm.Disposals outside the family of the business or farm.In the context of disposals within the family of the farm, the amount of CGT retirement relief is unlimited, until the parent reaches the age of 66 years when a €3m limit applies.
In the context of disposals outside the family of the farm, such as selling a site in the open market, the amount of the relief is capped at €750,000 (or €500,000 where the farmer sells the land when he is 66 years of age or over).
While a disposal of assets between a husband and wife is normally regarded as being at such a figure as to give no gain/no loss on the disposal; for the purpose of CGT retirement relief on a disposal of assets outside the family, such disposals are taken into account at market value in calculating the total aggregate disposal proceeds.
The figure of €750,000/ €500,000 is a lifetime limit for the individual taxpayer for all disposals of qualifying assets made after he has reached the age of 55 years. So, if you are 55 years of age or over when you transfer your interest in the land into the joint names of you and your spouse, it will use up a portion of your €750,000/€500,000 tax-free limit for availing of retirement relief on disposals outside the family.
For example, if you decided to sell a portion of your land and the proceeds of disposal were €250,000 and you were 55 years of age or over and had owned and farmed the land for 10 years before your first leased it, you could avail of CGT retirement relief on the sale and pay no CGT.
If you then transfer your interest in other land into the joint names of you and your wife and the value of the interest transferred to your wife exceeds €500,000, it may result in a clawback of the retirement relief claimed on the earlier transfer. Therefore, it would be important to clarify whether you have claimed CGT retirement relief already or whether you plan to do so in the future and the effect transferring the land to your wife might have. If you have not sold land after reaching 55 years and do not plan on doing so, then you need not concern yourself too much with this aspect.
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