Farm Ireland

Sunday 19 November 2017

Massive tax hit looming for family farm transfers

Caitriona Murphy

Caitriona Murphy

The Government has paved the way to bring the average family farm transfer into the tax net by 2012.

Changes to capital taxation measures mean that farm transfers that would never have incurred a tax bill before will become liable by 2012.

The new regulations will cost farmers thousands of euro on the transfer of ordinary farm holdings.

Minister for Finance Brian Lenihan reduced the tax-free threshold for Capital Acquisitions Tax (CAT) by 20pc from €414,799 to €331,839 in parent to child transfers last week, which will affect the transfer of farms worth more than €3m in the next 12 months.

However, farms worth significantly less will become liable for tax bills the following year. Experts have warned that farms worth over €1.3m are at risk of incurring significant tax bills from 2012.

This is due to a combination of lower CAT thresholds, the potential curtailment and/or abolition of agricultural and business reliefs from CAT in 2012 and the threat of a stamp duty charge on agricultural land transfers.

For example, take a farm (land, stock and machinery) worth €1.5m being transferred from father to son or daughter in 2012.

If the Government takes the advice of the Commission for Taxation and reduces the agricultural relief on CAT from 90pc down to 75pc, some €1.125m of the farm's value is non-taxable, leaving €375,000. The new threshold, revised for CAT, is €332,000, which leaves €43,000 to be taxed at the 25pc rate of CAT.

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In this example, the farm transfer would cost €10,750 in tax in 2012 compared to a zero tax bill in 2010 and 2011.

However, there is potentially more bad news to come.

Taxation expert Declan McEvoy of IFAC warned farmers that if the Government introduced a similar stamp duty regime for agricultural land as it did for residential properties last week, farm transfers would be hit with significant stamp duty charges.

In this instance, a family farm worth €1.5m would incur an additional €20,000 stamp duty bill, based on a 1pc charge up to €1m and a 2pc charge on the next €500,000.

The taxation professional also warned that while there was no mention of Capital Gains Tax (CGT) in last week's Budget, the four-year National Recovery Plan included plans to increase CGT rates and curtail or abolish reliefs.

"If the level of Capital Gains Tax applied to farm transfers was similar to the CAT levels, you could be looking at a total tax bill of €30,000 to €40,000 on a €1.5m farm," he said.

"If farm transfers involve that much tax, guys will have to sell land to pay the tax bill.

"Or in some circumstances they might be better to transfer the farm on death, in which case only inheritance tax is due."

Mr McEvoy insisted that transfers could grind to a halt unless farmers informed their local TDs about the negative impact of these tax changes.

"Farmers need to make their rural representatives aware of the potential cost to farming," he said.

IFA chief economist Rowena Dwyer admitted that IFA officials shared Mr McEvoy's concerns about the effect of taxation changes on farm transfers.

"While there is relief that farmers now have some certainty about transferring farms in 2011, we are definitely concerned about what could be down the line," she said.

"We want to prevent family farms falling liable to the Capital Acquisitions Tax trap and will be working to inform the Government of the potential effect on land transfers."

Irish Independent

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