Denis Naughten
Question:172 Mr. Naughten asked the Minister for Finance the tax reliefs which are available to persons (details supplied); and if he will make a statement on the matter. [31851/01]
Written Answers. - Tax Reliefs.
In order to promote lifetime transfers of land and encourage more young people to pursue farming there is full relief from stamp duty on the transfer of land to a young trained farmer under the terms of the Programme for Prosperity and Fairness for three years until 31 December 2002.
For the purposes of the relief a "young trained farmer" is one who: (i) is under 35 years of age at the date of execution of the transfer; (ii) is the holder of one of the specified qualifications e.g. the Teagasc certificate in farming; or (iii) if born before 1 January 1968, has three years' experience in farming together with satisfactory completion of Teagasc training courses in agriculture and horticulture of 180 hours' duration.
Where the transferee has completed at least one academic year of the Teagasc certificate in farming at the date of execution of the transfer, he-she may obtain the relief by way of a refund provided that the qualification is obtained within three years of the date of execution of the transfer.
There is provision in legislation for 90% relief from capital acquisitions tax, CAT, in respect of gifts and inheritances of certain agricultural property. The latter may include agricultural land, farmhouses, farm buildings, farm machinery and bloodstock. The relief is not restricted to, but would include, young qualifying farmers. To avail of the relief, 80% of his/her gross property must – after the taking of the gift – comprise agricultural property, livestock, bloodstock and farm machinery.
Where the donee has taken no prior gifts or inheritances from either or both of his/her parents since 5 December 1991 and is receiving a gift of agricultural land from parents, he/she may also avail of the group 1 exempt threshold which applies where the donee is a child of the disponer(s). This amount is currently £316,800. Therefore, a child can take a benefit of £3,168,000 in qualifying assets from a parent(s) free of CAT, that is, 90% relief worth £2,851,200 plus the balance of 10% or £316,800 which is covered by the threshold.
Certain full-time farmers can avail of income averaging where, instead of being charged tax on their farming profits in the normal way, that is, on the profits of a 12 month period ending in the year of assessment, a farmer may elect to be charged on the basis of the average of the aggregate farming profits and losses of the three years ending in the year of assessment. In effect, one-third of the profits for the three years is charged for a year. Farmers who, or whose spouses, carry on another trade or profession or who are directors of companies which carry on a trade or profession cannot elect for income averaging. An exception is provided for in the case of the provision of farmhouse holidays. Once an election for averaging is made, a farmer must remain on averaging for a minimum of three years. If the farmer wishes to revert to the normal basis of assessment, the two years of assessment immediately before the final year of averaging are reviewed and, if necessary, additional assessments are made to ensure that the amount charged for each of those two years is not less than the amount charged for the final year of averaging.
Farmers can also avail of a scheme of capital allowances for the purchase of a milk quota under the national quota restructuring scheme which the Minister for Agriculture, Food and Rural Development introduced from 1 April 2000. The allowances apply to milk quota purchased from co-operatives or dairies as well as in the case of certain milk quota purchased directly from lessors by lessees not connected to that lessor who are currently leasing that quota. The allowances are granted on a straight line basis over a seven year period. The allowances apply to expenditure incurred on or after 6 April 2000 on the purchase of qualifying quota. Where a milk quota is subsequently sold or disposed of the normal balancing allowance or charge provisions will apply. Following completion of consultations with the European Commission a ministerial order was recently signed which activated the commencement of these provisions. In the course of these consultations the Commission indicated to the Irish authorities that it considered the relief to be compatible with their State aid guidelines, subject to the relief being extended to all purchases of milk quota by producers in the State. Accordingly, it is proposed to amend the relief in the forthcoming Finance Bill so to include the purchase of all milk quota by producers subject to a cap on the amount of relief payable equal to the maximum of the price fixed by the Minister of Agriculture, Food and Rural Development under Article 8(f2>b) of Council Regulation (EEC) No. 3950/92 – the restructuring scheme – in respect of the quota year in which the transfer of quota takes place.
Persons chargeable to tax on their farming profits may claim a farm buildings allowance for capital expenditure on the construction of farm buildings, other than buildings used as a dwelling, and certain other works, such as fences, roadways, holding yards, drains, land reclamation and other works such as walls, water and electrical installation and sewerage. The cost is written off at the rate of 15% of the cost in each of the first six years with the remaining 10% in year seven.
Farmers may also avail of a special scheme of capital allowances for farm pollution control where qualifying expenditure on necessary measures has been incurred. This scheme, which was introduced in the Finance Act, 1997, originally applied for three years, from 6 April 1997 to 5 April 2000. It provided for a special year one allowance limit of 50% of expenditure incurred or £15,000, that is, 50% of £30,000, whichever is the lesser. The rest of the expenditure can be written down over seven years giving a total write down period of eight years. The 2000 Finance Act made a number of changes to the scheme. First, it extended the scheme for a further three years to 5 April 2003. Second, for expenditure incurred on or after 6 April 2000, it reduced the writing down period from eight to seven years. Third, it also increased the limit to the lesser of 50% of the expenditure or £25,000, that is, 50% of £50,000. Finally, it converted the year one allowance into a floating allowance to be taken in whole or in part at any time over the writing down period.
Farmers who dispose of livestock under a disease eradication scheme can opt for a special tax treatment of profits which arise from the compulsory disposal of livestock as provided for under section 668 of the Taxes Consolidation Act, 1997. This section provides for the deferral of such profits in two equal instalments, either in the year of disposal and the following year or the two years after the year of disposal. In addition, farmers who restock their herds during the deferral period qualify for 100% stock relief, instead of the usual 25% in respect of the replacement livestock. This 100% stock relief is subject to a cap, which is equal to the amount of the profits made by farmers as a result of the compulsory disposal. Such profits are as a result of the difference between the book value of the disposed livestock at the start of the accounting period and the amount of the compensation paid under the various disease eradication schemes. The effect of both the profit deferral and the special 100% stock relief is that farmers affected by the compulsory eradication schemes are not taxed on what is in effect a paper profit and can restock their herds without incurring an additional tax liability as a result of the compensation received. In my recent budget speech, I announced that the current two year period during which farmers can opt to defer book profits that have arisen from compensation received in respect of the compulsory disposal of livestock under a statutory disease eradication scheme will be extended to four years. The corresponding two year restocking period during which such farmers can qualify for 100% stock relief is also to be extended to four years.
Tax relief is also provided for in respect of the increase in value of livestock and other stock such as fertiliser etc. This relief is available at 25% to farmers in general and at an enhanced rate of 100% to certain young trained farmers. This relief was extended until 31 December 2002 in the 2001 Finance Act, subject to the signing of a commencement order. My Department is currently examining this relief in the context of the European Commission's new guidelines on state aid to the agriculture sector and the orders can be signed when my Department has confirmed that the reliefs adhere to these guidelines.
Farmers can also avail of the general five year write off period, that is, 20% per annum, for capital allowances for plant and machinery, which was introduced in the 2001 budget.