QI have been a farmer all my life and am planning to retire soon. I am 53 years old and considering selling the farm to my son when I retire. Can I sell the farm to my son tax-free? If not, what kind of tax bill could I face? Is there anything I can do to reduce the tax bill I face when selling my farm?
Tim, Co Kerry
ASelling the farm to your son means you need the money. You can pass the farm on to your son while you are still alive -- however, it could be worth your while waiting another two years before you do so.
At the age of 55, you can avail of retirement relief or business relief and these reliefs can slash the tax bill which would otherwise have to be paid on the sale of your farm.
With retirement or business relief, the value of assets -- such as land, buildings, livestock, bloodstock and farm machinery -- are reduced by 90 per cent and then passed on to your son. The 10 per cent balance -- known as the agricultural value -- is then potentially taxable. To be eligible for the relief, you must be a qualifying farmer -- and to be a farmer in the eyes of Revenue, 80 per cent or more of total gross assets, including the farm, must be agricultural in nature.
Both business relief and agricultural relief may be subject to clawbacks if your son sells the farm within six years of you claiming the relief -- or 10 years for development land.
Having farmed all your life, when you are over 55 you will receive relief from any Capital Gains Tax (CGT) liability that you may have when you sell your farm. CGT is a tax which is usually paid on any profits made from the sale of an asset.
As for your son, he can currently inherit up to €225,000 from you tax free. This €225,000 is the threshold for Capital Acquisition Tax (CAT) -- the tax paid on inheritances. If your son inherits an asset worth more than €225,000 from you, he must pay 33 per cent CAT on any balance over the €225,000 threshold. In the last Budget, the Government had been toying with the idea of raising the CAT tax rate of 33 per cent to 35 per cent; it may introduce the higher rate next year.
Stamp duty of 1 per cent would also be payable, but there is a full exemption from stamp duty in the case of a transfer to a young trained farmer -- which I assume your son is. To be a young trained farmer, your son must be under 35 years of age with an appropriate agricultural qualification -- and undertake to spend not less than 50 per cent of his working time farming the lands.
QI would like to start off the New Year by investing my money more wisely. Most of my savings are on deposit so I'm considering using those savings to buy shares directly. Is it a good idea to buy individual shares -- and what kind of tax can I expect to pay on any profits I make?
ABuying individual shares is a mug's game -- a hit and hope strategy that could very well lose all your money. Yes, I agree that interest rates are at a historical low and if you want any investment growth, you must accept a modicum of risk.
When compared to other investments, the stock market has seen the best return over the last few years -- but the key to success can be down to timing. You have already missed out on the fifth longest bull market in the history of the stock market.
That is why I particularly like the simple and easy-to-understand managed fund investments now available from a number of providers. With these investments, you are generally asked to select a fund or funds where the risk is rated between one and seven -- or between one and five. The safest funds, such as government bonds, cash funds and so on, come with a risk rating of one. The riskiest funds, such as emerging markets, technology and energy stocks, come with the highest risk rating -- whether that be five or seven.
You can swap to safer funds at any time and at no cost; most providers offer up to 12 free swaps a year. Leading the pack are Standard Life's MyFolio funds, Irish Life's Multi Asset Portfolios and Zurich's Pathway Funds. Remember, if you want growth, you must take some risk.