Agri-food and the economy - capital gains tax measures

An indicative list of the Capital Gains Tax measures that are currently available (updated for changes introduced in Budget 2015) to the farming sector are listed here, along with a brief explanation. Please note that these do not purport to give a definitive legal interpretation of the various measures and individuals may wish to seek professional advice if availing of them.

Retirement Relief from Capital Gains Tax

• Retirement Relief from CGT – Parent to child transfers
• Retirement Relief from CGT – Transfers other than to a child

Capital Gains Tax Relief on Farm Restructuring

Capital Gains Tax Relief for Transfer of a Site from Parent to Child

Capital Gains Tax Relief for Woodlands

Retirement Relief from Capital Gains Tax (CGT) is available where an individual, who is at least 55 years of age (with some exceptions such as chronic ill-health) disposes, by way of sale or gift, of the whole or part of his/her qualifying assets. Although the relief is commonly known as “retirement relief” a claimant does not have to retire in order to qualify. Retirement relief from CGT is available to non-agricultural businesses also.

Qualifying assets

An explanation of “qualifying assets” for CGT relief is provided here. Please note that some of the terms used have specific meanings for the purpose of the relief. Professional advice should be sought for more comprehensive explanations of “qualifying assets”.

List of Qualifying Assets relevant to the farming sector:

• The chargeable business asset of the individual which he/she has owned for at least 10 years up to the disposal date and which have been his chargeable business assets throughout that 10 year period;
• Single Farm Payment Entitlements where they are disposed of at the same time and to the same person as land, to the extent that the land would support a claim to payment in respect of those payment entitlements;
• Land leased under the Scheme of Early Retirement from Farming, where for a period of not less than 10 years prior to the land being leased it was owned by the individual claiming relief and used by him or her for the purposes of farming throughout that period;
• Land which was let during the 5-year period prior to its disposal under a compulsory purchase order for the purpose of road construction and certain related activities but, prior to its first letting, was farmed for 10 years by the person making the disposal;
• Land which was let at any time during the 25 years before disposal but, prior to its first letting, was farmed for 10 years by the individual making the disposal and the disposal is to a child;
• Land which was leased out on a long term basis (for a minimum of 5 years and a maximum of 25 years) but, prior to its first letting, was farmed for 10 years by the owner and the disposal is to a person other than a child – Budget 2015 introduced temporary qualifying arrangements around this for those who may have let land out on a conacre basis; see ‘Retirement Relief from CGT - Transfers other than to a child’ section below for details.
• The amount of retirement relief from CGT available is dependent on whether qualifying assets transferred are
• Parent to child transfers or;
• Transfers other than to a child

Irrespective of the amount of consideration for the disposal, full relief may be claimed by an individual aged 55 – 65 years of age on the disposal of the whole or part of his/her qualifying assets to his/her child. Full relief may be claimed in respect of the consideration for the disposal of qualifying assets worth up to €3 million in the case of individuals aged 66 years or more with effect from the 1 January 2014. Where the consideration exceeds €3 million, relief will be given in respect of the CGT chargeable on any gain accruing on the disposal by individuals aged 66 or more as if the consideration for the disposal had been €3 million.

The upper limit on relief for transfers by individuals aged 66 years or more was introduced in Budget 2012, but a lead in period was flagged to allow for an orderly transition.

The relief is clawed back where the child disposes of an asset within 6 years of the date of acquisition from his/her parent. For parent to child transfer a child can include a child of a deceased child. Foster child or nephew/niece transfers may also qualify in certain circumstances provided further specific qualifying criteria are met.

From the 1 January 2014 where the disposal consideration does not exceed €750,000, relief from CGT is given in respect of the full amount of tax chargeable on the disposal in the case of an individual aged 55 – 65 years of age. The amount of full relief for individuals aged 66 years or more has been reduced from €750,000 to €500,000. This was introduced in Budget 2012, but a lead in period was flagged to allow for an orderly transition.

Where the consideration exceeds the thresholds set out above, marginal relief applies so as to limit the amount of tax chargeable to 50% of the difference between the amount of the disposal consideration and €750,000/€500,000 thresholds.

Changes introduced in Budget 2015 gives farmers who let their land on conacre and who ultimately dispose of their land to a person other than a child a once off opportunity to avail of CGT retirement relief, provided they satisfy the other requirements of the relief, where they either:

• Dispose of their land on or before 31 December 2016, or
• Lease their land on or before 31 December 2016 for a minimum period of 5 years (up to a maximum of 25 years) and ultimately dispose of the land.

CGT relief for farm restructuring provides for a rollover relief for farm restructuring and parcel swaps with certain conditions to ensure a more efficient farm holding arises. To be eligible for the relief, the sale and purchase of qualifying land(s) must occur within 24 months of each other with the initial sale or purchase of qualifying land taking place in the period 1 January 2013 – December 2019.

The conditions attached to the EU State Aid approval also restrict the scope of the CGT relief to agricultural land only. Buildings on the land are no longer eligible for the relief with effect from 23 December 2014.

Relief is only available to claimants who are issued with a Farm Restructuring Certificate by Teagasc.

Stamp Duty Relief for farm consolidation allows for a 1% rate of stamp duty (as opposed to the general rate of 6%) where the land transactions qualify for a “Farm Restructuring Certificate” for the purposes of Capital Gains Tax Relief on Farm Restructuring. It will apply in relation to instruments conveying or transferring agricultural land that are executed on or after 1 January 2018 and on or before 31 December 2020. Where there is a purchase and sale of land within 24 months of each other that satisfy the conditions of consolidation, then stamp duty will only be paid to the extent that the value of the land that is purchased exceeds the value of the land that is sold. In addition both the purchase and sale must occur between 1 January 2018 and 31 December 2020. In such a situation stamp duty will only apply at the rate of 1% on the excess.

The main conditions for Reliefs are;

• There must be a valid restructuring certificate issued by Teagasc in relation to the purchase and sale of land, occurring within 24 months of each other. The Minister for Agriculture, Food and the Marine has made the necessary guidelines detailing how applications for restructuring certificates are to be made to Teagasc under capital gains tax and also setting out, amongst other things, the conditions of consolidation.
• The purchaser or purchasers must retain ownership of the land for a period of five years.
• The conveyance must contain a certificate stating that the purchaser is entitled to the relief

A clawback of the relief will apply where the land or part of the land purchased is disposed of or partly disposed of before the end of the 5 year holding period. Such a clawback will not occur where the land purchased is compulsorily acquired. Detailed guidelines on the operation of this relief are available to download at;

• Capital Gains Tax and Stamp Duty Relief Guidelines relating to applications for Restructuring Certificates August 2018 (pdf 103Kb)

An exemption from CGT is available for the disposal of a site from a parent to a child where the transfer is to enable the child construct a principal private residence on the site. The market value of the site must not exceed €500,000. The area of the site (exclusive of the area on which the house is to be built) must not exceed 0.4 ha or 1 acre. If the child subsequently disposes of the site without having occupied a principal private residence on the site for at least 3 years, then the capital gain which would have accrued to the parent on the initial transfer will accrue to the child in addition to his/her own gain. However, a gain will not accrue to the child where he or she transfers an interest in the site to a spouse or civil partner. This measure is available to both farmers and non-farmers.

The CGT relief for woodlands applies where woodlands are being disposed of. The consideration for the disposal of trees growing on the land is not included in calculating the chargeable gain nor are insurance proceeds received on foot of destruction of or damage or injury to trees by fire or other hazard on such land. The relief applies to individuals only.