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Sunday 4 December 2016

Save on tax with farm transfers

Cash in on conditions in Young Trained Farmer Relief scheme to avoid big Revenue bills when looking to hand over your business

Aidan O'Boyle

Published 08/03/2011 | 05:00

Normally stamp duty is not a concern for farmers since it does not arise where assets pass on to the next generation under a will. However, where the farm or other assets are transferred by way of a lifetime gift, stamp duty may arise depending on the nature and value of the assets being transferred.

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The top rate of stamp duty on the disposal of non-residential property is 6pc of the market value of the property. This can very quickly become a hefty bill. Take, for example, a 100ac farm without any buildings or house. Even at today's lower land values of, say, €8,000/ac, the stamp duty on this could be as much as €48,000.

Residential property is treated more kindly by Revenue. The rate of stamp duty for this is 1pc up to €1m and 2pc on the excess. However, when non-residential property is passed on to blood relatives, the stamp duty rate is cut by 50pc.

These figures are outlined merely to highlight the value of the exemption from stamp duty in respect of the transfer of agricultural land to young trained farmers. But there are several conditions that need to be met before any farmer can qualify.

Conditions

The main conditions to be met for Young Trained Farmer Relief are as follows:

  • The person to whom the assets are transferred must be under the age of 35 years at the date of transfer;
  • He/she must have obtained certain specified agricultural qualifications;
  • The paperwork must be submitted to the Revenue Commissioners for their approval;
  • The young trained farmer must furnish a written declaration to the Revenue Commissioners confirming that, for a period of five years from the date of execution of the instrument, he/she intends to spend no less than 50pc of his/her normal working time farming the land and he/she will retain ownership of the land for that period;
  • The transferee's PPS number must be supplied with the paperwork.

The land transferred must be agricultural land. This can include farm buildings and farm houses. In fact, even mansion houses "of a character appropriate to the land" qualify for relief, if you are lucky enough to own one.

The timing of the disposal is important as the land must be transferred at the same time as the farm buildings. In addition, the whole transfer must be irrevocable. In other words, there cannot be a provision in the contract whereby the farm can subsequently be transferred back to the original owner, although the original owner can retain the right to live on the farm.

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At what point does a young farmer become a young trained farmer? The specified qualifications include those awarded by FETAC, HETAC and other third-level institutions. Other courses which have been certified by Teagasc and the National Qualifications Authority of Ireland, as being equivalent to these courses, also qualify. Further courses qualify, provided they are supplemented by further agricultural/horticultural and farm-management courses of minimum duration.

What happens if the land is being transferred to a number of children or blood relatives?

The relief will still apply provided that all of the persons to whom the land is transferred qualify for the relief. If one of the joint owners does not qualify for relief, no relief is given to any of the joint owners.

Exception

There is an exception whereby transfers to the spouse of a young trained farmer qualify for relief regardless of whether the spouse is a young trained farmer or not.

The relief will be clawed back where the land is disposed of by the young trained farmer within five years of the transfer, unless the entire proceeds of sale are invested in acquiring further agricultural land within one year of the disposal. The clawback also applies where any of the particulars in the declaration or certificate are subsequently found to be untrue in any material respect. The stamp duty which would have been payable, or a proportion of it, together with late payment interest from the date of the original transfer, will be due in the event of a clawback. Disposals by joint owners to their spouses or to other joint owners do not give rise to a clawback.

In conclusion, Young Trained Farmer Relief is just one of a number of valuable reliefs that can be availed of by farmers, although they all have a substantial number of qualifying conditions attached. As a result, it is advisable to get professional advice prior to undertaking such transfers.

Aidan O'Boyle is a manager at the taxation unit in Grant Thornton

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