In the absence of Revenue Commission guidance, the best approach is to revisit the briefing issued in 2005 and identify common issues between the changeover to SFPE and now the BPS. Limited company as a trading option has become much more common since 2005.
What are the tax issues?
1. Capital Gains Tax: Notwithstanding that someone may gift them for no money, they will be still liable to Capital Gains Tax at 33% on the profit. The entitlements will be deemed to have been sold at market value. They will be able to use the annual exemption of €1,270. As entitlements have not been owned for 10 years and where they are not transferred with land no retirement relief is available.
2. VAT: If the value of entitlements sold exceed €37,500 in a calendar year, VAT will apply.
3.Gift Tax: If gifted for no money, the entitlement as an asset becomes liable to gift tax. While reliefs may be available, an examination of the tax impact should be considered.
Limited company - can be
broken into three categories
1 Company trading and
established before
15 May 2013
Single Farm Payment submitted in company name in 2013 and company has established the allocation right.Single farm payments entitlements transferred to company prior to or before May 2013Basic payment will be allocated to the company in 2015These companies need to tick the ‘relevant box’ on the 2014 application form.Tax Issues: Based on the company having established the allocation right by virtue of having farmed in 2013, no taxation issues should arise as no transfer has taken place.
2 Companies established since 15 May 2013 and before 15 May 2014
The farmer leases land and entitlements as normal to the company in 2014.
If excess entitlements in 2014 as against the land owned they will need to transfer the excess entitlements to the company before the 15 May 2015.
In 2014 or 2015 the farmer must transfer the balance of his entitlements to the company on the basis of the farmer being a director or majority shareholder. The company will therefore be allocated the BPS entitlement based on 60% of the value of 2014 entitlements.
Tax Issues
Capital Gains Tax: As the allocation right is a chargeable asset for capital gains tax, the transfer of the allocation right to the company in 2014 or 2015 will attract tax.
The value liable to tax will depend on the market value.
Market value in 2015 will be less than 2014 and it would be recommended to defer the transfer to 2015 on the basis of:
Allocation right will be 60% of SFP.No market in 2015 for entitlements.Market value in 2014 can be up to 2.5 times the face value.Lessor chance of VAT.VAT: If the sale price exceeds €37,500 VAT will apply at the rate of 23% if sold without land. A farmer who exceeds the threshold value by selling the entitlement will be permitted to register for VAT in respect of that transaction only, thus not affecting the remainder of his farming activities. The gift of the entitlement will not be liable to VAT but could be liable to Gift Tax.
Capital Acquisition Tax: A gift of the entitlement should be able to qualify for either agricultural relief or business relief provided the relevant conditions to the relief are met.
Stamp duty: An exemption applies on the disposal of an entitlement and we are assuming the same applies to the allocation rights.
3 For companies that establish after 15 May 2014, the allocation right can be transferred to the company in 2015.
The same tax issues arising are: CGT ,VAT and gift tax. By examining the various tax issues you can minimise the tax hit on the transfer to a limited company. The tax costs of the transfer need to be established and then examined in light of overall tax planning strategy. Proper tax advice should be obtained from a person versed in dealing with agri-taxation affairs. An opportunity may exist, by proper structuring to avoid the capital gains tax.
Non company tax issues will be dealt with next week.
In the absence of Revenue Commission guidance, the best approach is to revisit the briefing issued in 2005 and identify common issues between the changeover to SFPE and now the BPS. Limited company as a trading option has become much more common since 2005.
What are the tax issues?
1. Capital Gains Tax: Notwithstanding that someone may gift them for no money, they will be still liable to Capital Gains Tax at 33% on the profit. The entitlements will be deemed to have been sold at market value. They will be able to use the annual exemption of €1,270. As entitlements have not been owned for 10 years and where they are not transferred with land no retirement relief is available.
2. VAT: If the value of entitlements sold exceed €37,500 in a calendar year, VAT will apply.
3.Gift Tax: If gifted for no money, the entitlement as an asset becomes liable to gift tax. While reliefs may be available, an examination of the tax impact should be considered.
Limited company - can be
broken into three categories
1 Company trading and
established before
15 May 2013
Single Farm Payment submitted in company name in 2013 and company has established the allocation right.Single farm payments entitlements transferred to company prior to or before May 2013Basic payment will be allocated to the company in 2015These companies need to tick the ‘relevant box’ on the 2014 application form.Tax Issues: Based on the company having established the allocation right by virtue of having farmed in 2013, no taxation issues should arise as no transfer has taken place.
2 Companies established since 15 May 2013 and before 15 May 2014
The farmer leases land and entitlements as normal to the company in 2014.
If excess entitlements in 2014 as against the land owned they will need to transfer the excess entitlements to the company before the 15 May 2015.
In 2014 or 2015 the farmer must transfer the balance of his entitlements to the company on the basis of the farmer being a director or majority shareholder. The company will therefore be allocated the BPS entitlement based on 60% of the value of 2014 entitlements.
Tax Issues
Capital Gains Tax: As the allocation right is a chargeable asset for capital gains tax, the transfer of the allocation right to the company in 2014 or 2015 will attract tax.
The value liable to tax will depend on the market value.
Market value in 2015 will be less than 2014 and it would be recommended to defer the transfer to 2015 on the basis of:
Allocation right will be 60% of SFP.No market in 2015 for entitlements.Market value in 2014 can be up to 2.5 times the face value.Lessor chance of VAT.VAT: If the sale price exceeds €37,500 VAT will apply at the rate of 23% if sold without land. A farmer who exceeds the threshold value by selling the entitlement will be permitted to register for VAT in respect of that transaction only, thus not affecting the remainder of his farming activities. The gift of the entitlement will not be liable to VAT but could be liable to Gift Tax.
Capital Acquisition Tax: A gift of the entitlement should be able to qualify for either agricultural relief or business relief provided the relevant conditions to the relief are met.
Stamp duty: An exemption applies on the disposal of an entitlement and we are assuming the same applies to the allocation rights.
3 For companies that establish after 15 May 2014, the allocation right can be transferred to the company in 2015.
The same tax issues arising are: CGT ,VAT and gift tax. By examining the various tax issues you can minimise the tax hit on the transfer to a limited company. The tax costs of the transfer need to be established and then examined in light of overall tax planning strategy. Proper tax advice should be obtained from a person versed in dealing with agri-taxation affairs. An opportunity may exist, by proper structuring to avoid the capital gains tax.
Non company tax issues will be dealt with next week.
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