Paul Kehoe
Question:190 Deputy Paul Kehoe asked the Minister for Finance the tax implications for a person who wants to swap land with a neighbouring person; and if he will make a statement on the matter. [5531/10]
View answerWednesday, 3 February 2010
Questions (125)
Written answers
I am advised by the Revenue Commissioners that a direct swap of land, in the circumstances outlined, would have implications for a number of taxes. I will look at each in turn.
Capital Gains Tax
The exchange of land is a chargeable occasion for both parties involved. Where the parties are connected or the bargain is not at arm's length the disposal proceeds are taken as the market value, at the date of exchange, of the land disposed of. Otherwise the disposal proceeds are the market value of the land received, also at the date of exchange.
The capital gains tax payable is calculated by reference to the difference between the disposal proceeds and the cost of acquisition of the land after allowable adjustments for inflation (prior to 2003) and the costs of acquisition and disposal. The first €1,270 of an individual's annual gains is exempt. The balance is chargeable to capital gains tax at 25%.
The same CGT rules apply to a disposal by way of exchange as to a disposal for money.
If the land had been the subject of a rezoning on or after 30 October 2009, then any gain on disposal attributable to such rezoning would be chargeable at a rate of 80%.
Relief from capital gains tax is available where an individual, aged 55 years or over, disposes of all or part of his/her "qualifying assets". For the purposes of this relief "qualifying assets" include land which have been owned by the individual for a period of not less than 10 years ending on the date of the disposal and have been used by the individual for the purposes of farming throughout the 10-year period ending with the disposal.
Capital Acquisitions Tax
Capital Acquisitions Tax (CAT) includes both gift and inheritance tax. If a person swaps land with a neighbouring person and the swapped lands are of equal value, then neither party has made a gift to the other party and, accordingly, CAT does not arise.
If the swapped lands, however, were not of equal value, the person receiving the more valuable lands may be liable to CAT on the excess value he or she is receiving. For example, if the lands received were valued at €100,000 and the lands given away were valued at €40,000, then gift tax would be payable by the person receiving the more valuable lands on the excess of the value being received of €60,000.
The person receiving the gift would be entitled to their normal CAT tax-free Group Threshold based on their relationship to the person making the gift. There are three tax-free Group Thresholds as follows:
Group A: €414,799 — applies where the beneficiary is a child (including adopted child, step-child and certain foster children) or minor child of a deceased child of the person making the gift or inheritance.
Group B: €41,481 — applies where the beneficiary is a brother, sister, nephew, niece, or lineal ancestor or lineal descendant of the person making the gift or inheritance.
Group C: €20,740 — applies in all other cases.
CAT is charged at the rate of 25% on any amount in excess of the appropriate group threshold amount.
Separately, if, as well as giving rise to a liability to CAT, the swapping of the lands also gave rise to a liability for Capital Gains Tax (CGT) for the person making the gift, the CGT paid can be credited against the CAT liability arising provided the lands are not disposed of within 2 years of being swapped.
Stamp Duty
In the case of an exchange of lands, stamp duty is charged at progressive rates based on the value of the lands being exchanged.
However, section 81C of the Stamp Duties Consolidation Act 1999 provides for a relief from stamp duty where a farmer sells land and purchases land in order to consolidate that farmer's holding and both the sale and purchase occur within 18 months of each other. Where the relief applies stamp duty is only chargeable on the purchase to the extent that the value of the land purchased exceeds the value of the land sold.
Under section 81C, each farmer involved in a direct swap of lands would be entitled to claim the relief on the land transferred to him or her where, as a result of the transfer, the farmer's holding has been consolidated and a consolidation certificate has been issued by Teagasc in respect of the transfer.
The main conditions which must be satisfied before the relief will be granted by the Revenue Commissioners are as follows:
There must be a valid consolidation certificate issued by Teagasc in existence at the date of the exchange of the lands.
The farmers involved in the exchange of the lands must spend not less than 50% of their normal working time farming and must farm the lands exchanged for a period of at least 5 years from the date of the exchange.
Each farmer must retain ownership of the lands exchanged for at least 5 years from the date of the exchange. A clawback of the relief arises where the land or part of the land included in the exchange is disposed of or partly disposed of before the end of the 5 year holding period.