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Saturday 21 October 2017

How the 2012 Finance Act will affect you

Tax practitioners around the country are getting to grips with the Finance Act 2012 which was published recently. There were no major provisions included in the Finance Act which affect the farming community other than those already announced in the Budget.

However, the finer details of some of the important reliefs were included. These details have tax-saving potential for farmers.

Capital Gains Tax Relief

A new relief from capital gains tax (CGT) has been introduced that will apply to land or buildings purchased between December 7, 2011, and December 31, 2013, where the property is held for more than seven years.

The person claiming the relief must be an Irish taxpayer during the first seven years of ownership of the property; so non-tax-resident persons cannot claim the relief.

The land or buildings can be situated in any of the following countries:

• All EU member states

• Norway;

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• Iceland;

• Liechtenstein.

If the land or buildings are acquired from a relative (sibling, parent, uncle, aunt, niece or nephew, etc), the money paid for the land or buildings must not be less than 75pc of the market value of the land or buildings in order to avail of the relief.

If a house was gifted between a parent and child, for example, and no money changed hands for the house, the relief would not be available, even though a charge to capital gains tax may arise to the parent.

The relief is available to individuals and companies.

This is an important point for farmers planning to incorporate in the next two years.

For example, if a farmer transfers his land of 100ac valued at €1,000,000 to his farming company for not less than 75pc of market value on January 1, 2013, and the company sells this land on January 1, 2020, for €1,500,000, the company will pay no capital gains tax on the gain of €500,000.

The exemption does not extend to disposals of shares in a company that holds property.

Where the property is held for a period greater than seven years, partial relief from capital gains tax applies.

For example, if a farmer bought 100ac for €1,000,000 on January 1, 2012 and sold it after 10 years on January 1, 2022, for €2,000,000, there would be a chargeable gain arising of €1,000,000.

Rather than paying CGT of €300,000 on the gain, the farmer avails of partial relief and will pay €90,000 assuming a CGT rate of 30pc applies (€1,000,000 x 7/10 = €700,000 relief).

If the farmer sold the land after seven years rather than 10 years, he would have no CGT to pay.

Stock Relief

If a person is carrying on the trade of farming and the person's closing farming trading stock value is greater than the opening farming stock value, the person can claim a deduction of 25pc of the increase in stock value against his farming taxable profits (see table one on the right).

The relief must be claimed in writing and applies to partnerships as well as to companies and individual farmers.

Arising from the Finance Act 2012, where a person (other than a 'qualifying farmer') is a partner in a registered farm partnership, 50pc of the increase in the value of trading stock will be available, rather than 25pc.

In the case of a 'qualifying farmer' (i.e. young trained farmer), he/she is entitled to enhanced stock relief of 100pc for a period of four years commencing in the year he/she becomes a "qualifying farmer".

This enhanced stock relief for Milk Production Partnerships applies to accounting periods between January 1, 2012, to December 31, 2015.

However, the Finance Act amendments are subject to an order of the Minister for Finance which at the time of writing had not been signed.

Mortgage Interest Relief

For those farmers planning on taking out a home loan, they should ensure that the mortgage is taken out this year, as mortgages taken out after December 31, 2012, will not qualify for mortgage interest relief.

Tax relief is given to mortgage-holders based on the interest paid on a qualifying mortgage on their homes. This includes a loan used to purchase, repair, develop or improve their sole or main residence.

The ceilings or upper thresholds on the amount of interest paid that qualifies for tax relief are dependent on:

• the status of the individual -- that is, whether he or she is married, in civil partnership or single; and

• whether he or she is a first time buyer.

See table two below.

The mortgage must be claimed on line (www. revenue.ie) as soon as repayments on the loan have commenced and the relief is given at source by the mortgage provider either in the form of a reduced monthly mortgage payment or a credit to the funding account.

Aisling Meehan is a solicitor, tax consultant and Nuffield Scholar. Ms Meehan does not accept responsibility for errors or omissions howsoever arising. The information in this article is intended as a general guide only. Email: aisling@agriculturalsolicitors.ie

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