Claw back cash with Capital Gains Tax reliefs
There is considerable scope for farmers to claim reliefs on Capital Gains Tax
Capital Gains Tax or CGT is a tax on profit or gains made on the disposal of assets. That seems pretty straight forward right?
This is tax, though, so it's never that simple.
Generally, you need to think about CGT if you are making a profit on disposing of any assets apart from the family home you may have a CGT liability.
CGT is payable on the gain or profit on a disposal.
This means you are entitled to deduct the cost of acquiring the asset plus the cost of disposing of the asset plus any expenses you have incurred in connection with any improvement of the asset.
If you inherited the asset you will need the value of the asset at the time of the inheritance.
The gain is taxed at 33pc. Everybody is entitled to an additional allowance of €1,270 each year also.
If the assets were bought more than 13 years ago, the costs are subject to a multiplier to allow for inflation.
So this means, if you bought a property for €100,000 and you incurred €5,000 costs during the purchase.
You then go on to make some improvements at a cost of €50,000 and it costs you a further €5,000 to sell the property and you strike a price for €260,000.
You then add up all of the costs to the purchase price, or the valuation price, and subtract this from the sale price.
So in this example the gain is €100,000 and this would be subject to a 33pc CGT.
Farmers have enjoyed reliefs from many taxes in a number of different ways over the years, as have other businesses, but in recent times the criteria for reliefs have become more and more rigid.
Farm Retirement Relief
This relief applies where an individual, who is at least 55 years of age at the time of disposal, disposes of the whole or part of his/her qualifying assets.
You may be entitled to relief if you are under 55 so consult an advisor. These are the qualifying assets for claiming farm retirement relief:
lLands you have owned and farmed for the 10 years immediately prior to the disposal.
lDirect Payment Scheme Entitlements that pass with the lands.
lMachinery or plant owned by the individual for at least 10 years ending with the disposal with the land.
lIf you own lands and had farmed them in the past but have since leased the land you should consult an expert to see if you are eligible under the leasing rules.
Parent to Child Relief
From January 1, 2014 if a parent aged between 55 and 65 years of age transfers the farm to their child a full relief may be claimed. If the parent is 66 or over the limit of the relief is €3m.
There is a 'claw back' to the revenue if the child disposes of the farm within six years.
The offspring of a deceased child, a foster child and a niece or nephew may also qualify in certain circumstances provided further specific criteria are met.
Farm Restructuring Relief
There is another form of relief for farmers who are selling land and then purchasing more land within two years of the sale.
The relief was initially introduced in the Budget 2013 to allow for farmers who were swapping outlying lands for lands nearer their main holding.
However, the situation has changed over the past year as Budget 2015 restricted the relief to agricultural lands only.
This means you must exclude the value of buildings.
This relief is subject to Teagasc certifying that the transactions are suitable for farming enterprise.
You will still be liable for any gain made once you have deducted the cost of purchasing the new lands and the costs involved in the transactions.
Where the sale takes place some time before the purchase of the lands the CGT will have to be paid.
Then an application should be made to the Revenue seeking the relief when purchasing the new lands.
If you avail of this relief and you sell the new lands within five years, the revenue may 'claw back' some or all of the value of the relief.
This 'claw back' does not apply to lands disposed of by compulsory acquisition.
As you can see, there is scope for a lot of relief from this tax for farmers.
If you are considering any transfer of this type you should think about all of the items I mentioned above and arrange a consultation with your solicitor or tax adviser with this information in mind.
John Cuddy, solicitor at Cuddy & Company Solicitors, Main Street, Loughrea, Co Galway and Theresa A Murphy, barrister, Ardrahan, Co Galway. www.cuddy.ie
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