Taxes on a Farm Transfer – A Guide to Transferring the Family Farm

Kevin Connolly

Getting good taxation advice is key ingredient in creating a successful succession plan. It is important to complete a taxation calculation prior to any handover taking place. If there is a potentially large tax bill, then it might be possible to mitigate against this, by adjusting the plan or timelines of the transfer.

With good advance planning and preparation, the issue of taxes should not have a major negative impact on the farm business transfer.

As part of a farm transfer, there are two significant tax triggering events occurring – the transfer of assets (land, entitlements, machinery, livestock) between the parties as well as the finishing up of the business in the hands of one person and the starting up of the business in the hands of the new farmer. We will first look at the taxes applying to the transfer of assets and identify the main areas to be aware of to attempt to control any potential tax liabilities.

The Transfer of Assets Event

As part of a farm business transfer, the ownership of the business assets usually changes. In the Irish tax system, there are a set of taxes chargeable whenever a change in ownership of an asset occurs. These taxes are known as capital taxes of which there are three – Capital Gains Tax, Capital Acquisitions Tax and Stamp Duty.

These taxes target the change in ownership of capital assets. The main ones that apply in a farm situation are land, buildings, payment entitlements, and in some cases cash on deposit. Assets such as farm livestock and machinery are not usually subject to these taxes in the transfer of a whole farm business but there may be income tax issues with these items which will be discussed briefly later. Some of the key features of each of these capital taxes are as follows:

Capital Gains Tax

Capital Gains Tax (CGT) looks to apply tax on the increase in value of assets such as land and building while these assets were in the hands of the person now considering transferring them. The tax applies only for the disponer (the person who owns the asset but is about to transfer it) who is transferring the asset during his/her lifetime. This increase in value (the Gain) can be crudely calculated as follows:

• Gain = current value at date of disposal
• Minus
• The value when the assets were first acquired by the current owner

As stated, this is a crude measure in that the gain can be adjusted to take account of improvements made to the asset (for example land drainage) and account can also be taken of the effect of inflation on the value of the asset. The main saviour in reducing the impact of CGT is via its main relief called CGT Retirement Relief, which can greatly reduce or eliminate the tax completely.

To avail of CGT Retirement relief there are a number of conditions that must be complied with, mainly:

• The owner must be over 55 years of age at the time of the transfer
• The owner must have owned and used the asset in question for the previous ten years

These conditions particularly the ‘ownership and usage’ condition have some flexibility but timely advice and forward planning is essential to make sure that this valuable relief is availed of. There are also other conditions relating to the maximum value of the assets that qualify (see later table for relief ceilings) so it is important that timely advice is received from an accountant/ tax adviser BEFORE any transfer takes place. Note that even though this is called Retirement Relief the claimant can still continue farming even after claiming the relief.

Table 1: CGT Retirement Relief ceilings effective from 1/1/2025

Capital Acquisitions Tax

Capital Acquisitions Tax (CAT) is a tax that targets the person receiving the assets via a gift (lifetime transfer) or via an inheritance (on a death). So unlike Capital Gains Tax (CGT), this CAT could apply where assets pass by lifetime transfer or on a death. It can apply to assets such as land, buildings and cash. However, there are also some useful measures and reliefs to reduce/ eliminate the exposure to CAT.

There are tax-free thresholds that apply depending on the relationship between the parties to the transfer with parent to child transfers having the highest threshold which means that they can transfer assets of higher value without attracting any tax.

Capital Acquisitions Tax Thresholds

There is a very useful CAT relief called Agricultural Relief which if applicable will reduce the value of the assets for calculation of the tax to 10% of its value. To qualify for Agricultural Relief, the receiver of the gift/ inheritance must pass what is known as the Farmer Test. Passing this test requires that the receiver has at least 80% of their total assets invested in agricultural assets.

From 1^st January 2015, there is also an additional requirement for the receiver of the agricultural assets to be classified as an ‘active farmer’. You should discuss the possibility of availing of agricultural relief of your own particular case with your accountant and solicitor as early as possible in the farm transfer process.

Your accountant/solicitor should be contacted to assist in carrying out the calculation. If Agricultural Relief is not available, then a similar relief called Business Asset Relief may be available. It is important to note that if either of these reliefs are availed of then there are minimum holding periods for which the assets must be held in the ownership of the receiver otherwise the relief may be clawed back. As previously advised, advance planning prior to a transfer may be required to fully avail of the reliefs so it is important to discuss your transfer plans in advance with your solicitor and accountant.

Stamp Duty

Stamp Duty as the name implies is a tax levied where an official Revenue Stamp is applied to the official transfer document (Called a Deed) for an asset. It applies to assets that require such official documentation to effect the transfer such as land, farm buildings or commercial property or a private dwelling. Payment entitlements, livestock or machinery are some of the assets that are not liable to stamp duty since they don’t require a Revenue stamp to give legal effect to the transfer. The stamp duty charge is levied on the recipient of the asset on the stamping of the deed or within 30 days of the transfer. The rate of stamp duty that applies differs depending on whether the asset is residential property or not.

Stamp Duty Relief

Stamp Duty has its own set of reliefs including a relief which reduces the rate applying to a transfer of a non-residential property (land, farm buildings), provided the transfer is between blood related parties. This relief called Consanguinity Relief will have additional qualifying conditions attached from 1^st January 2016 including a new ‘active farmer’ conditions.

Another important relief is Young Trained Farmer Relief from Stamp Duty whereby a young farmer (< 35 years old) with the appropriate qualifications (minimum Level 6 Specific Purpose Certificate in Farming) can get full relief from stamp duty. As with some of the other reliefs, there are conditions applying on the young farmer as to the length they must hold onto the asset and also that they must remain classed as a farmer for a period after availing of the relief.

As taxation rules are complex, it is important to get advice from qualified professional as early as possible in the process. It is vitally important that you meet your accountant and solicitor early in the process to discuss your succession and farm transfer plans. Getting legal and tax advice early along with input from your Teagasc advisor can help you avoid unnecessary tax bills by missing out on available reliefs and can help ensure that there is no unnecessary leakage of valuable funds from the business to pay unnecessary tax bills.

Income Tax Repercussions of any Proposed Transfer

Many of the non-capital assets such as machinery and livestock can be transferred without incurring capital taxes or any income tax if the business is passed as a going concern from a farmer to his successor. There may however be income tax implications for the retiring farmer when they stop trading as a farmer under the ‘Cessation to Trade’ rules. Getting an accountant to run the rule over the potential income tax implications of any handover can prevent any unforeseen tax shocks.

Table 2: Summary of the main features of capital taxes

The above is Chapter four from A Guide to Transferring the Family Farm. This booklet provides essential information on taxes, legal issues, collaborative farming options, pensions and education issues relating to farm transfer.

Note: The information in the above was correct at time of printing the booklet, it however should be noted that Irish taxation rules may change from time to time when the National Budget is announced and published in the Finance Act.

Download a copy of A Guide to Transferring the Family Farm