•A reform of capital acquisitions tax.
Flat-rate farmers are unable to reclaim VAT incurred on most expenditure. For this reason, any increase in VAT can represent a real increase in costs for such farmers. For this reason, it may make sense to bring forward spending on expensive equipment before the expected increase in VAT, which will likely take effect from January 1.
Take, for example, a flat-rate farmer who is considering purchasing a large machine which will cost €100,000 plus VAT. If the farmer buys the machine on December 31 and the VAT rate is 21pc, then clearly the farmer would also be required to pay €21,000 of VAT. If the VAT rate increases to 23pc, it would represent an additional cost of €2,000 for this purchase.
If a farmer is considering bringing forward the purchase of equipment, they should contact their supplier to discuss the VAT implications -- it may be that a deposit paid in advance of the VAT increase could achieve the same saving, or at least a partial saving, of the VAT element.
Reform of Capital Gains Tax
Two of the most likely changes in this area would appear to be as follows:
•An increase in the capital gains tax rate from its current level of 25pc;
•The abolition or restriction of capital gains tax reliefs.
If you are considering the sale or transfer of farmland, Single Farm Payments or other assets, you may wish to complete the transaction prior to Budget day as any capital gains tax rate increases or relief restrictions are likely to be effective from that date. Any of these changes could significantly increase your tax liability.
The relevant rate of capital gains tax is generally the rate applicable at the date of contract. Therefore, contracts should be signed prior to the Budget date. The same considerations apply to both sales at arm's length and gifts, as gifts are also subject to capital gains tax.
Among the reliefs which could be abolished or restricted are the following:
•Retirement relief, whereby a farmer may transfer assets to family or non-family members, with no capital gains tax liability, or a reduced capital gains tax liability arising, subject to certain conditions being met;
•Exemption from capital gains tax on the disposal of a site to a child for the purpose of enabling the child to construct a dwelling house on the land, subject to certain conditions.
Reform of Capital Acquisitions Tax
Possible changes in this area include the following:
•An increase in the capital acquisitions tax rate, on gifts and inheritances, from its current level of 25pc;
•A reduction in the tax-free capital acquisitions tax thresholds;
•The abolition or restriction of capital acquisitions tax reliefs.
These changes could lead to a significantly higher tax liability.
The reliefs which may be restricted or abolished include:
•Agricultural relief, whereby the value of gifts and inheritances of agricultural assets may be reduced by 90pc, subject to certain conditions;
•Business asset relief, whereby the value of gifts and inheritances of business assets may be reduced by 90pc, subject to certain conditions.
While the 2pc increase in the standard rate of VAT has been well signposted, the changes in the areas of capital gains tax and capital acquisitions tax are less certain.
However, there is little to be gained from delaying planned transfers since we can be pretty sure that tax rates will not be reduced nor will reliefs be made more generous. This advice comes with the usual caveat that you should, of course, consult an appropriate adviser prior to any such transaction.
Bernard Doherty is a partner in Grant Thornton