A capital idea for land consolidation
Published 21/09/2016 | 02:30
Many farms in Ireland are fragmented and this can be a serious impediment to developing an efficient farming enterprise.
Consolidation, whether through a combination of buying, selling and/or exchanging, offers an obvious solution, particularly where there are no serious tax impediments.
One such impediment for many years was Capital Gains Tax and this was acknowledged by the Government in introducing a scheme of Farm Restructuring Relief in 2013.
This legislation provided for relief from Capital Gains Tax on the sale (or exchange) of agricultural land in certain instances.
Capital Gains Tax will only be payable on the sale price to the extent to which it exceeds the purchase price.
Where the purchase price of the replacement lands exceeds the sale price of the lands being disposed of, well then there will be no chargeable gain and consequently no tax.
If the purchase takes place before the sale, the relief will be given at the time of sale. However, where the sale takes place before the purchase, Capital Gains Tax will have to be paid in the normal manner.
In such a situation a claim for the relevant refund of the Capital Gains Tax paid can be made to the Revenue Commissioners following the subsequent purchase. Where land has been exchanged simultaneously, the relief will be given at the time of the exchange.
What is Farm Restructuring?
Farm Restructuring is where a parcel of land is sold by a farmer and where another parcel of land is purchased by the same farmer and where the sale and purchase occur within 24 months of each other.
An exchange of land with another landowner also qualifies. The following are some of the main features and rules of the scheme:
The replacement land can be acquired either before or after selling the land to be disposed of.
The replacement land cannot be sold within five years of acquiring it.
To be eligible to claim the relief, the sale and purchase of qualifying land must occur within 24 months of each other, with the initial sale or purchase of qualifying land taking place prior to December 31, 2016 and the associated sale or purchase taking place within 24 months of that date.
The interaction of the sale and purchase together must result in an overall reduction in the distance between the parcels comprising the farm which includes land that has been leased for at least two years and has a minimum of five years to run.
A parcel of land means an entire field or group of fields, but does not include buildings on the land.
The concession can include the sale of the entire agricultural land holding and the replacement of it by the purchase of another agricultural land holding. However, the holding being disposed of must consist of a minimum of two separate land parcels in order to be considered eligible for the relief. The reason for this is to satisfy the requirement to improve the farm structure.
The change of ownership of land by virtue of a Compulsory Purchase Order (CPO) is not the sale or purchase of qualifying land for Farm Restructuring purposes. Eligible Persons
A 'farmer' for the purposes of this relief means an individual who is a fulltime farmer or, a qualified farmer (a person with the appropriate farming qualification) or, a person who spends not less than 50pc of their normal working time farming. The definition of farmer includes limited companies where the farmer holds a majority shareholding.
Land sold and purchased as part of Farm Restructuring must be in the state and must be agricultural land and not afforested land, peat land, or have any buildings on the land. The value of these should be deducted when the relevant chargeable gain is being calculated.
Farm Restructuring Certificate
A Farm Restructuring Certificate is required by Revenue. This is a certificate issued by Teagasc to the farmer restructuring his/her holding.
It identifies the lands sold and purchased and it certifies that Teagasc is satisfied, on the basis of information available at the time of certifying, that the sale and purchase of lands complies with the conditions of restructuring.
Where Teagasc is not in a position to provide such a certificate on the grounds that it considers that the application does not satisfy the scheme requirements, the decision may be appealed within two weeks.
Any such appeal will be considered by a panel comprised of one officer from Teagasc and one officer from the Department of Agriculture, Food and the Marine. The officers on this panel will not have been involved on the original decision.
Farmer Joe is 52 years of age and has a 30 acre out farm, six miles away from his home farm. A 40ac holding which is adjoining the home farm has come for sale. He has a willing purchaser for the out farm and providing he can avail of Capital Gains Tax relief on the sale he expects to be in a position to buy the adjacent land. We will assume that both holdings will make €10,000 per acre and that the out farm was acquired in 1994 for €1,600 per acre. On the basis of the facts of the case, there is no obvious reason why Farmer Joe will not qualify for the relief and by so doing he will save himself €77,275.