Q I have a large forestry plantation in Ireland - which is 10 years old. I am in my 80s. Should I sell this plantation in a few years' time or leave it to my son and daughter in my will? Which would be the most tax-efficient option for them? As they are not farmers, I fear they may not be able to manage thinnings and clearfelling, or the sale of the plantation. Tom, Wicklow
As I'm sure you are aware, profits from the occupation of Irish woodlands, managed on a commercial basis, are exempt from income tax - though PRSI and the Universal Social Charge (USC) still apply. As such, the forestry investment that you hold is very valuable and one of the few remaining tax-efficient investments available.
A disposal during your lifetime of this land would give rise to capital gains tax (CGT). However, profits from the sale of standing timber should be exempt. Only the increase in the value of the land is assessed for CGT purposes - at a rate of 33pc. This tax liability could be avoided if you were to leave the land to your children in your will, as CGT does not arise on death. Upon leaving the land to your children, they will be subject to capital acquisitions tax (CAT) at 33pc on the value of the woodland they inherit. Each child can receive €335,000 in inheritances and gifts from their parents over their lifetime before being subject to CAT.
Your children may be eligible for agricultural relief - which reduces the taxable value of the woodland by 90pc - if they qualify as a farmer.
To qualify as a farmer, 80pc of each child's assets must be in agriculture and forestry on the valuation date.
Each child must also be considered an 'active farmer', whereby they either farm the woodland on a commercial basis or lease the woodland to someone who farms it on a commercial basis.
There is a clawback of the relief where the beneficiaries cease to be farmers within six years of the inheritance.
It is worth noting that trees growing on the land qualify for the agricultural relief regardless of whether your children qualify as farmers or not.
Where your children do not meet the 80pc farmer test for agricultural relief, they may qualify for business relief.
Business relief also allows for a 90pc reduction in the market value of the woodland when arriving at the taxable value of the inheritance.
In conclusion, while you may have concerns regarding your children's ability to farm the land, if they were eligible for agricultural relief, the tax liability associated with leaving them the woodland in your will, as opposed to leaving them an equivalent cash sum, would be significantly lower. For example, woodlands valued at €1m would be reduced to €100,000 for inheritance tax purposes. This means that you could save up to €297,000 in tax by leaving woodlands valued at €1m to your children - as opposed to leaving them an equivalent cash sum of €1m.
Assuming that your children are not qualified farmers, they could arrange for the land to be let to a qualified farmer to ensure they are eligible for the relief.
This may also alleviate any concerns you have regarding their ability to manage the woodlands.
Tax for the non-married
Q: A friend of ours passed away recently. He had been living with his partner for more than 20 years -but they never married. He had a daughter from a previous relationship. He left his house to his daughter and his partner in his will. His daughter can inherit her share of the house tax-free. However, his partner is facing a tax bill of €40,000, as her share is to be taxed as if she were a stranger. Is this right? Linda, Co Dublin
While some progress has been made in addressing certain tax issues facing cohabitating couples, Revenue has yet to extend the tax reliefs available to married couples in respect of gifts and inheritances to cohabitating couples.
Unfortunately, for the purposes of CAT (also known as inheritance or gift tax), cohabitants are regarded as 'strangers in blood'. Gifts and inheritances between cohabitants therefore do not qualify for the exemption from CAT which applies to married couples.
Cohabitants can only inherit - or receive gifts - of up to €16,250 tax-free from each other over their lifetime. Inheritances or gifts in excess of this threshold are taxable at 33pc.
In these specific circumstances, the individual's partner may qualify for the dwelling house exemption - a tax break which allows houses and apartments to be inherited tax-free - if certain conditions are met.
His partner will be exempt from CAT where the house she inherits was the main home of her partner prior to his death and she had also lived in the house as her main home for the three years prior to his death.
She must not have an interest or share in any other house and she must continue to live in the house for six years after the date on which she received the inheritance.
If the dwelling house exemption does not apply, his partner will be liable to pay 33pc CAT on the value of the inheritance that exceeds €16,250.
There may be scope to make a claim in accordance with the redress scheme for cohabitating couples.
The aim of this scheme is to provide protection for a financially dependent member of the couple if a long-term cohabiting relationship ends either through death or separation.
Where a property adjustment order is made under this scheme against the estate of a deceased individual, there are no inheritance tax issues for the surviving cohabitant.
Moving funds home
Q I recently returned to Ireland after working in the US. I invested in a number of US investment funds while working over there. What are the Irish tax implications of moving these funds back home? Tadhg, Co Kerry
As an Irish tax resident, originally from Ireland, on disposal of these funds you will be liable to Irish CGT on your worldwide gains. An individual is considered Irish tax resident if they have spent 183 days or more in Ireland in one tax year - or 280 days or more in Ireland across the current and the previous tax year, with at least 30 days spent in Ireland in each year.
Assuming you remain in Ireland for the duration of 2020, you are likely to become Irish tax resident. Any disposal of your investments following your return will therefore be subject to Irish CGT. Any gain on the disposal of US shares will attract Irish CGT at 33pc.
You should be entitled to an annual CGT exemption of €1,270 - where the first €1,270 of taxable gains in a tax year are exempt from CGT.
Furthermore, you may also have a US tax exposure. However, on the basis that you have permanently returned to Ireland, the double-taxation treaty between Ireland and the US provides that only Irish CGT should apply.
As the disposals will be liable to Irish CGT, the transfer of the sale proceeds from the US to Ireland should not attract any further Irish tax.
Finally, it should be noted that more often than not, individuals are invested in offshore funds - and subject to a special tax regime in Ireland, where gains are taxed at 41pc as opposed to CGT at 33pc.
So it is recommended that tax advice is obtained before making any such disposals.
Lisa Kinsella is partner with Crowe
Sunday Indo Business