How tax reliefs can make or break the farm transfer process
Since the increase in the standard Stamp Duty rate to 7.5pc in Budget 2020 the value of the two special Stamp Duty schemes for farmers has come in for more scrutiny.
I am referring to the exemption for young trained farmers and the 1pc consanguinity rate. Qualifying for either of these two schemes can be the difference between being able to afford a lifetime transfer of the family farm or not.
For example, a transfer of a typical farm worth €800,000 could cost up to €60,000 in Stamp Duty were it not for the reliefs.
My article last week on overall State Aid limits to Stamp Duty, Stock Relief and Succession Partnerships prompted a lot of queries, particularly in relation to Stamp Duty on farm transfers.
A lot of confusion appears to exist in relation to certain aspects of both reliefs, so here I will attempt to clarify the qualifying conditions for both schemes.
Consanguinity Relief
Similar to a veterinary remedy of past decades, it has a ‘quare name’ but is certainly a valuable relief for what otherwise would be a hefty Stamp Duty bill.
This relief applies to transfers of farmland between certain blood relatives whereby the applicable rate of stamp duty is reduced from 7.5pc to 1pc.
The relevant relationships for this relief include: ■ Lineal descendent (child, step-child, grandchild etc);
■ Parent, step-parent and grandparent;
■ Brother, sister, step-brother and step-sister;
■ Aunt and uncle;
■ Nephew and niece; Transfers between cousins or in-laws do not qualify.
Certain conditions apply: ■ the transferee is required to farm the land for at least six years following the date of transfer, or lease the land for at least six years to a qualified or full-time farmer;
■ the person farming the land must farm the land for at least half of their normal working time or be the holder (or become the holder within four years) of one of the young trained farmer relevant agricultural qualifications.
This scheme is due to end on December 24, 2020 and it will not be known until Budget 2021 if it will be extended beyond that date.
Farmers contemplating a transfer where the exemption scheme may not be an option are advised to have the transfer completed before the December deadline.
Stamp Duty exemption scheme
This scheme provides an exemption from Stamp Duty up to a maximum saving of €70,000 on land transfers and purchases.
This means that virtually all qualifying applicants will have no liability. The €70,000 limit applies to a combination of the cash value of the Stamp Duty relief, the 100pc Stock Relief scheme and the Succession Partnership scheme.
The conditions for qualification are:
■ The transferee must be under 35;
■ The transferee must hold a relevant agricultural qualification at the time of transfer in order to claim the exemption or they may
Doing the sums:
to qualify for Consanguinity Relief, the person farming the land must farm the land for at least half of their normal working time or be the holder (or become the holder within four years) of one of the young trained farmer agricultural qualifications.
acquire the qualification within four years and claim a rebate of the stamp duty paid; ■ Only agricultural land will qualify, along with such farm houses and buildings on the land that are of a character appropriate to the land. Land occupied as commercial woodland is not eligible; ■ The land which is the subject of the transfer must be retained for five years or, if disposed of, it must be replaced by a similar value of land.
Where the required agricultural qualification is acquired after the date of execution of the deed of transfer, the five-year period starts on the date on which the claim for a refund is made.
■ The transfer cannot be subject to a revocation clause but a transferor can retain certain rights such as rights of residence, support and maintenance;.
■ The transferee must devote at least 50pc of their normal working hours to farming; ■ The transferee must prepare a farm business plan and have it certified by Teagasc prior to the transfer.
Following recent Revenue clarification, it is possible to lodge more than one
application for the relief. The current scheme expires on December 31, 2021 and hopefully will extended beyond that date which has been the case every third year since its introduction in 2007.
The 50pc Working Time Rule
This condition has been the source of much uncertainty since being amended in the 2017 Finance Act.
In considering whether the normal working time requirement is fulfilled,
Revenue state it can be accepted that “normal working time” (including on-farm and off-farm working time) approximates to 40 hours per week.
This will enable farmers with off-farm employment to qualify for the relief provided they spend a minimum of 20 hours working per week, averaged over a year, working on the farm.
If a farmer can show that his or her “normal working time” is somewhat less than 40 hours a week, then the 50pc requirement will be applied to the actual hours.
From my own experience of such cases, Revenue will not have a problem once the person can show that they
are in a position to devote the required weekly hours working on the farm.
For example, if a transferee is living at or near home and has a relatively short daily commute to work or is working partly from home, it should be possible to satisfy Revenue that meeting the working time rule is entirely feasible.
But if the transferee was residing away from home during the week it would be hard to see how they could meet the requirement.
Farm Business Plan
The young trained farmer availing of the exemption must submit a business plan to Teagasc before the execution of the deed transferring the land.
Assistance in preparing the plan can be sought from any agricultural adviser but the plan must be certified by Teagasc.
When submitting the plan to Teagasc, the young trained farmer declares that he or she is responsible for the content and implementation of the business plan.
The certificate issued by Teagasc will be required by the solicitor when applying for the exemption.