Farm Ireland

Wednesday 25 April 2018

Reducing Capital Gains Tax relief for farmers could save State almost €8m – Finance

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Stock photo
Ciaran Moran

Ciaran Moran

Officials in the Department of Finance have assessed the possibility of reducing the current level of Agricultural Relief on Capital Gains Tax (CGT).

The analysis was carried out by the Department’s tax strategy group with notes that Agricultural CGT is the seventh most expensive tax relief for the state at €215m per annum.

Qualifying farmers can avail of CAT agricultural relief which reduces liability to CAT by 90pc.

To qualify for agricultural relief, 80pc of the beneficiary’s assets, after having received the gift/inheritance, must consist of qualifying agricultural assets.

The beneficiary must also be an active farmer or lease the land to one. Agricultural Relief has been available for gift and inheritance tax since the introduction of Capital Acquisitions Tax in 1976.

The relief operates by reducing the market value of 'agricultural property' by 90pc, so that gift or inheritance tax is calculated on an amount - known as the 'agricultural value' - which is substantially less than the market value.

In documents developed to inform Minister for Finance Pascal Donohoe, the group said reducing the scale of the reliefs from 90pc to 75pc of the taxable value of the relevant assets and capping the relief at €3m (originally suggested by the Commission on Taxation) would increase the yield from CAT.

It said reducing agricultural relief from 90pc to 80pc for example would result in an estimated additional yield of €7.7m for the full year 2017.

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However, the group said such a move could have a negative impact on the development and growth of family businesses.

Following the Agri-taxation Review, agricultural relief has been maintained in its current form but restricted to apply only to active farmers or where the agricultural property is leased to an active farmer.

Meanwhile, the group also highlighted stamp duty reliefs for agriculture in its strategy paper.

In Finance Act 2015, Young Trained Farmers relief, which was due to expire on 31 December 2015, was extended for a further three years to 31 December 2018.

Stamp Duty is not payable where land is conveyed or transferred to the holder of approved qualifications who is under 35 years and who farms the land, for not less than 50pc of his or her normal working time, for a period of not less than five years from the time the land is conveyed or transferred.

The group said the cost of extending this relief was estimated at €4m per annum.

Another stamp duty relief for Agriculture also examined by the group was Consanguinity relief

Under this relief conveyances and transfers of certain properties between close relatives were subject to Stamp Duty at one-half of the normal rate.

This relief was due to expire at the end of 2014. However, arising from recommendations of the Agri-taxation Review Finance Act 2014 provides that this relief will continue to be available for another three years, i.e., in relation to the conveyance of land executed on or after 1 January 2015 and before January 1, 2018.

The relief is confined to the conveyance or transfer of land by an individual who is 65 years or under, where the person to whom the land is being conveyed or transferred is a farmer who, from the date the land is conveyed or transferred, spends more than 50pc of his or her time farming the land – including the land conveyed or transferred – for a period of not less than six years. In addition the land must be farmed on a commercial basis and with a view to the realisation of profits.

It is designed to encourage farmers who are of retirement age to transfer their land to a son or daughter or other close relative who will be better able to farm the land productively.

The group said he cost of this relief in 2016 was €2.1m.

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