Farm Ireland

Tuesday 23 January 2018

Time to take advantage of succession relief before it's too late

Agricultural and business asset breaks available

Bernard Doherty

Every farmer should have a plan for how they want to transfer their assets when they decide to retire. With asset values at an all-time low, there has never been a better time to consider succession planning.

Add to that the considerable speculation that business and agricultural reliefs could be severely curtailed in future budgets and the impetus to act has rarely been greater. Here we look at some of the options using a case study of Patrick Collins, who was a farmer for many years.

Patrick took the decision to incorporate his farming trade into Collins Farm Ltd in order to avail of a lower corporation tax rate and increased pension options a number of years ago. The main assets held in the company are €200,000 cash and €20,000 of farm machinery.


This puts the total value of Collins Farm Ltd at €220,000. Patrick also holds the land and buildings from which the farm trades outside the company in his personal name. These are currently valued at €1m.

Patrick has now reached 60 years of age and would like to pass on his assets to his children in a tax-efficient manner so that they may continue the operation of the family farm. On a gift of assets, there are normally three taxes to consider; capital gains tax (CGT) for the person making the gift, and capital acquisitions tax (CAT) and stamp duty for the beneficiary. However, reliefs such as retirement and agricultural relief are available to reduce CGT and CAT.

•Retirement relief is available to farmers who have reached 55 years of age and who have held assets for 10 years and who satisfy a number of other conditions.

•Agricultural relief takes the form of a 90pc reduction in the market value of agricultural property. An individual does not need to be a farmer to avail of the relief. Instead 80pc of their assets must be farming assets.

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•Business asset relief can reduce the taxable value of the relevant business property (which can include farming assets) taken by the beneficiary.

The taxable value of an asset is the market value less liabilities, costs, expenses and consideration.

While they may appear similar, there are succinct differences between agricultural and business asset relief which are important to note particularly for the case of Patrick. For example:

•The assets must be held by Patrick for five years prior to making the gift in order to qualify for business asset relief, whereas there is no such requirement for agricultural relief.

•While business asset relief is available to anyone, agricultural relief is only available to farmers as defined above.

•Where shares in a farming company are being transferred, only business asset relief applies.

•Where assets are not retained by the beneficiary for six years after the gift, subject to replacement provisions, business asset relief will be clawed back. No such restriction exists for agricultural relief.

•The beneficiary must remain resident in Ireland for at least three years after the gift is made for the purposes of agricultural relief.

Taking the above reliefs into consideration, there are three possible options available to Patrick (see table, above).

1. Make a gift of the land, buildings and the shares in the farm to children

Where the land, building and shares transfer at the same time, business asset relief should be available for the children, which will significantly reduce the value of the gift transferring.

However, a significant portion of the company's value derives from cash -- on which business asset relief is not available because it is an excepted asset.

It is important that the transfers are made at the same time and that the land and buildings are transferred at a time when they are held personally by Patrick.

Relief will be denied where the land and buildings are held by a company which is not a trading company.

2. Gift land and buildings only while retaining shares in the farm

Should Patrick decide to transfer the farming assets only, agricultural relief should be available for the children assuming that on receipt of the assets, at least 80pc of their total assets are farming in nature and they are "farmers" for the purposes of the test. Agricultural relief is not available on the shares in Collins Farm Ltd.

3. Sell the land and buildings to the farming company and make a gift of the shares in the farming company to children

As Patrick is a controlling shareholder of Collins Farm Ltd, market value will be imposed on a sale of the land and buildings to Collins Farm Ltd by Patrick for cash consideration. He may also have a charge to capital gains tax at a rate of 25pc on any gain made by him.

The benefit of this is that he can extract the cash into his own name and also ensure business relief is granted on the shares in the farming company.

On a gift of the shares in Collins Farm Ltd, as agricultural relief is not available on shares in a farming company, business asset relief should instead be available for the children, thereby reducing the taxable value of the gift significantly.

In all of the above examples, stamp duty will arise for the children; the rate being 1pc on the value of shares transferring and up to 6pc on the land and buildings where assets are valued in excess of €80,000.

Retirement relief may be available for Patrick on the transfers where the relevant conditions are met, bearing in mind that there is no limit on the value transferring where the gift is made to children.

This article is only a general discussion and does not deal with all the issues and reliefs available. When planning for succession, it is important to plan carefully and to obtain professional advice.

Bernard Doherty is a partner in Grant Thornton

Indo Farming