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Tax Reliefs Availability

Dáil Éireann Debate, Tuesday - 18 June 2013

Tuesday, 18 June 2013

Questions (98, 100)

Joe McHugh

Question:

98. Deputy Joe McHugh asked the Minister for Finance the tax arrangements that apply in respect of the transfer of family farmlands; and if he will make a statement on the matter. [29219/13]

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Seán Kyne

Question:

100. Deputy Seán Kyne asked the Minister for Finance his views on the continuation of favourable tax treatment to families involved in passing on family farms from one generation to the next particularly in view of how central such a policy is in sustaining the model of agriculture preferred here and in Europe and how central farms are to our rural communities. [29290/13]

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Written answers

I propose to take Questions Nos. 98 and 100 together.

The importance of agriculture in the Irish economy is well recognised. In this context specific tax reliefs are provided where farms are passed on from one generation to the next. These reliefs include Capital Acquisitions Tax ("CAT") agricultural relief, Capital Gains Tax ("CGT") relief on transfer of farms to children and Stamp Duty Relief on family transfers and transfers to young trained farmers. These reliefs are summarised below.

Capital Acquisitions Tax

Capital Acquisitions Tax (CAT) is the overall title for both Gift and Inheritance Tax.

While the passing on of family farms from one generation to the next by way of gift or inheritance can give rise to a charge to CAT, the following relief applies.

CAT Relief on Transfer of Agricultural Property

In order to qualify for this agricultural relief an individual receiving a gift or inheritance of agricultural property must qualify as a farmer. For the purpose of the relief a farmer is an individual at least 80% of whose assets constitute agricultural property.

CAT agricultural relief takes the form of a reduction in the market value of the agricultural property - currently by 90% - for the purposes of establishing the Group thresholds and determining whether or not a CAT liability arises on a transfer. This relief has increased over the years from an original reduction of 50% when CAT was introduced in 1975. The relief will be withdrawn if the agricultural property is sold or compulsorily acquired within six years of or, in certain circumstances, ten years of the gift or inheritance unless the proceeds are reinvested in other agricultural property.

The overall position as regards CAT is therefore, that parents can transfer a family farm with a market value of up to €2,250,000 to a child without any charge to CAT arising on the transfer, (assuming the child qualifies as a "farmer" under the 80% assets test) as the market value of the agricultural lands transferred would be reduced by 90% to €225,000 – this is the Group A threshold for transfers from parent to child for CAT purposes – to leave no CAT payable.

(This assumes that the child has received no prior gifts or inheritances from his or her parents).

The fact that farms with a market value of up to €2,250,000 can be transferred to a child without any charge to CAT arising reflects the Governments recognition of the central importance of agriculture to the overall economy and to the sustaining of rural communities.

Capital Gains Tax

Section 599 of the Taxes Consolidation Act 1997 provides for relief from capital gains tax ("CGT") on transfers of businesses or farms by parents to their children, subject to certain conditions being met. The meaning of "child" for the purposes of this relief is extended to include a child of a deceased child, a nephew or niece who has worked full-time in the business or farm for a period of 5 years prior to the disposal. It also includes a foster child who was under the care of and maintained at the expense of the individual making the disposal for a period of 5 years (or periods which together amounted to 5 years) up to the time such foster child reached the age of 18.

Broadly, the relief applies where the business or farm has been owned and used by an individual for business or farming purposes for a period of at least 10 years prior to the disposal. The relief is intended to encourage early transfer of businesses or farms from parents to their children. Accordingly:

- Full relief is available in the case of an individual aged 55 but under 66, who disposes of a business or farm to his or her child or a child of his or her civil partner.

- Full relief is also available in the case of an individual aged 66 or over who, on or before 31 December 2013, disposes of a business or farm to his or her child or a child of his or her civil partner.

- In relation to disposals made on or after 1 January 2014, where the individual making the disposal is aged 66 years or over full relief is available on disposals where the market value of the qualifying assets is €3 million or less. If the market value is over €3 million the relief is limited to the gain on an amount of €3 million.

Where an individual is disposing of land used for farming to his or her child and the consideration for its disposal consists in whole or in part of other land, the individual acquiring this other land will be treated as having acquired the land at the time and for the consideration that the child originally acquired it and to have farmed it for the same period that the child farmed it.

There is a provision for a clawback of the relief where the assets transferred to the child are disposed of by the child within 6 years of the date of transfer. In any such case, the capital gains tax which would have been charged on the transferor, if the relief had not applied, is assessed and charged on the child, in addition to the tax on any gain made by the child on his or her disposal of the assets.

Where a CAT charge and a CGT charge arise on the same event in relation to the same property the CGT is allowed as a credit against the CAT due. The credit is withdrawn where the asset is disposed of within two years of the gift or inheritance.

Stamp Duty

The transfer of farmlands normally attracts a charge to stamp duty at the rate of 2% on the market value of the lands transferred. A reduced rate of 1% applies in the case of a transfer, on or before 31 December 2014, where the transferee is related to the transferor in one of other of the following ways:

"as a lineal descendant, parent, grandparent, step-parent, husband or wife, brother or sister of a parent or brother or sister, or lineal descendant of a parent, husband or wife or brother or sister, or is, as respects the person or each of the persons immediately theretofore entitled, his or her civil partner, the civil partner of either of his or her parents or a lineal descendant of his or her civil partner"

There is also an exemption from stamp duty where the transferee is a young trained farmer. To qualify as a young trained farmer, the transferee must be under 35 years at the date of the transfer and must also be the holder of specified educational qualifications as set out in Section 81AA and Schedule 2, 2A and 2B of the Stamp Duties Consolidation Act 1999. This exemption applies where the transfer is executed on or before 31 December 2015.

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