Read small print of taxation reports and avoid paying fortune in Capital Gains Tax
There was a nervous wait last Tuesday for Minister Noonan to announce the much-anticipated reform of the capital tax system. It was speculated that the rates of stamp duty for agricultural land transfer would be reduced but, on the other hand, it was expected that gift tax would be increased.
There was a window of opportunity of a few hours from the minister's speech on Tuesday afternoon to midnight when farmers knowing the 'old' and 'new' tax rules could decide which ones to fall under, depending on which rules saved them most tax. The difference of signing Deeds of Transfer on the Tuesday under the old tax system and Wednesday under the new tax system had the potential to save thousands in tax where the farming son/ daughter did not qualify for young trained farmer stamp duty relief -- and thankfully the gamble paid off for those farmers that decided to wait.
The Commission on Taxation Report, which was published on July 31, 2009, recommended a cut from 90pc to 75pc on the value of the business which should be allowed before tax is calculated and further a cap of €3m on the limit of relief from gift/inheritance tax. In addition, the report suggested that a condition of the relief should be that a farm asset is owned and operated as a farm for a period of six years after the transfer. Currently, a clawback will only arise if the land is sold or compulsorily acquired within six years of the date of the benefit.
However, none of these recommendations were implemented last Tuesday. Given the focus of the Department of Agriculture on land mobility and getting land into the hands of young, innovative, ambitious and prospective farmers, it is disappointing that the provision requiring the land to be owned and operated as a farm to avail of agricultural relief was not introduced.
To put it bluntly, a person with no agricultural background or qualifications, who is working and living full-time in Dublin and earning an annual salary of €100,000, can be gifted or inherit land worth €2.5m down the country and pay no gift tax because they can be considered a "farmer" and avail of agricultural relief (see the table, above).
The Commission on Taxation Report recommended that Capital Gains Tax (CGT) relief for family transfers should be continued but limited so that it applies to asset values up to €3m. Budget 2012 has restructured the retirement relief available on CGT.
As of January 1, 2014, for those farmers aged 66 and over, an upper limit of €3m will be introduced on family transfers, compared to an unlimited amount at present. On non-family transfers, the current limit of €750,000 will be reduced to €500,000.