Family-farm transfers and taxation

ONCE the decision to transfer the farm is taken, thoughts quickly turn to the tax implications for both the transferor and the transferee.

A one-to-one consultation with your Teagasc advisor is an important first step to review the technical and financial performance of the farm. The Teagasc advisor will also advise both the transferor and transferee to seek timely advice from the tax consultant, accountant and solicitor to maximise the benefits under tax reliefs and ensure a legal basis for the transfer.

The accountant should have market valuations of the assets and complete calculations prior to making any transfers, so that taxation due can be minimised.

The land transferor is liable for Capital Gains Tax at the current rate of 33 per cent on all capital assets including land, buildings and payment entitlements, but there are reliefs available such as annual exemption, indexation relief and retirement relief.

Capital Gains Tax is calculated by taking the current value of assets at date of disposal minus the value when the assets were first acquired by the current owner. CGT retirement relief can greatly reduce or eliminate this tax completely, however the owner must be over 55 years of age at the time of the transfer and must have used the assets in question for the previous 10 years.

The transferee should have

completed the green cert in agriculture to avail of relief from CAT. But the green cert alone will not grant the transferee automatic relief from CAT via Agricultural relief.

The transferee will have to pass the farmer financial test (80 per cent agricultural property test) and then look to comply with the active farmer test.

The active farmer test means you must spend 50 per cent of your normal working time on the farm.

The young trained farmer stamp duty applies to farmers under 35 years old with a minimum level six certificate in agriculture. They must also submit a business plan to Teagasc for certification so they can get full relief from stamp duty.

If they don’t have the Green Cert completed and they will turn 35 years of age before getting the Green Cert, they should have the land transferred before they are 35 years old, pay the stamp duty and then claim a refund once they have the Green Cert completed.

If the transferee is over 35 years old, they will not qualify for the young trained farmer stamp duty relief, but may qualify for consanguinity relief, reducing stamp duty down to one per cent.

Consanguinity relief is available for transfers of non residential property where the transferee is an active farmer and farms the land for six years or spends 50 per cent of their normal working time farming on a commercial basis.

This relief applies to transfers to blood-related persons i.e. brother or sister, or a relative who is not blood related.

In a life-time transfer, the main taxes to watch out for are capital acquisition tax, capital gains tax and stamp duty, while for inheritance the main tax to watch out for is capital acquisition tax.

If there is more than one successor, each successor will be looked at individually as regards their eligibility for the various reliefs relating to CAT and stamp duty.

Farmers can structure their business through collaborative farming arrangements such as registered farm partnerships or succession farm partnerships as these arrangements can have significant tax and scheme benefits.

With good advance planning and preparation with the various professionals involved, the issue of taxes should not have a major negative impact on the farm business transfer.