Farm Ireland

Thursday 23 November 2017

Farmers could face crippling Capital Gains Tax bills if Minister doesn't act quickly


Mary Farrell

Farmers letting their land on conacre could find themselves facing a crippling tax bill upon retirement and disposing of the land unless the Government steps in.

The attractive retirement capital gains tax relief package, which was introduced under the Finance Act 2014, is due to cease at midnight on New Year's Eve.

The few farmers who are now aware of the exemption - as publicity surrounding its introduction was close to nil - now find themselves in a race against time to avoid bills running into many thousands of euro.

The failure to extend the relief in the recent budget also went largely under the radar but many farmers approaching retirement after 2016 will get a nasty shock when billed for 33pc of the increase in the value of the land since they took it over.

The Finance Act 2014 currently provides farmers who had previously let their land in the informal arrangement known as conacre - and who ultimately dispose of the holding to a third party (not their child) - a one-off opportunity of exemption from capital gains tax.

The provision allows taxation flexibility on land let on conacre, which is considered an investment asset rather than a business asset such as land farmed by the land owner. Previous to the 2014 legislation, land let on conacre did not meet the criteria for such relief. This meant that many farmers disposing of land let informally faced 33pc capital gains tax bills on disposal of the property to anyone other than their child. As it stands, that situation will resume on January 1, 2017.

The people most affected are small farm owners with no immediate family members to whom they can pass on their land. Many of those affected are elderly, bachelor farmers or those whose family members have all emigrated. In my experience, it's quite common for such farmers to have been renting on conacre for 20 years or more.

Many have been unable to work the land for whatever reason and may have been motivated by an emotional attachment to let their holdings informally rather than sell - perhaps more in hope than anticipation that a family member would return and take it over. Eventually, most agricultural land owners will arrive at an acceptance that such a scenario is never going to unfold and decide on the sensible move - to let the land go.

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That's when the problem arises regarding capital gains tax. It can be a very significant amount for the smallest of farm holdings.

For example, a farmer with 20 acres, valued at €10,000 per acre, would end up with a valuation of €200,000 for land which may only have been valued €30,000 when they took control. Based on such an increase, and in the absence of the current relief measure, the land owner could be faced with a bill of roughly €56,000 in respect of capital gains tax.

Until the end of this year, legislation exempts these farmers from such hefty billing by the State, providing they fulfil certain requirements.

A person over the age of 66 can claim exemptions for capital gains tax on the sale of a business asset up to the €500,000. In the example given above, a €200,000 sale would mean no monies are owed to the State. The 2014 legislation provided a taxation flexibility which allowed people renting land on conacre into this arena. They had never been allowed in before and now it looks like they will be shut out again without so much as a whimper of publicity about it.

Currently, they only have two options in order to avoid a capital gains tax hell and they both involve a battle against the clock:

• Dispose of their land on or before December, 2016 (even if leasing on conacre); or

• Formally lease their land on or before December 31, 2016 for minimum period of five years (up to a maximum of 25 years) and ultimately dispose of the land.

It is also important to remember that an overriding condition in relation to eligibility for retirement relief is that the land ultimately being disposed of must have been owned and farmed by the retiring farmer for a period of not less than 10 years, before the land is first let.

A simple quick-fix solution to the impending problem would be to extend the current provision until December 31, 2019. The Minister has already extended legislation in relation to farm restructuring until 2019 in the Finance Bill due to be enacted shortly.

It would come as a big relief to many if he was minded to do the same in this instance.

A Ministerial Order to amend the existing legislation would be all that is needed to remove this very serious issue for farmers caught up in this and there are many - most of whom may not even be aware of the situation.

In fact, in the course of my duties, I have found that hardly any of those most affected know anything about the current relief or its imminent cessation.

I would strongly encourage the Minister to oversee an amendment to change the expiry date of this very valuable tax relief for some of the country's most vulnerable landowners.

Mary Farrell is Tax Consultant at Tax Advice Services. She is a former Tax Inspector and Auditor at the Office of the Revenue Commissioners

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