Here at Ecovis DCA, we spend a great deal of time discussing issues that specifically pertain to Irish Small and Medium Enterprises (SMEs) due to their importance to the Irish economy and our clients. There is another vital area of the Irish economy that we sometime overlook, and it is one that the Irish economy overall was built upon, farming.
There are a great many intricacies to the farming career that many are not aware of. From taxation to the day-to-day general finance issues associated with running a farm there are many steps that are overlooked. Today we would like to focus on the issue of Capital Gains Tax (CGT) in relation to farming, as there are ways for CGT liability to be avoided by utilising Retirement Relief.
It is not massively well known that there are certain scenarios in which CGT may be charged on the transfer of ownership of a farm. These include:
- Scenarios where the farmer is over 66 years of age.
- Scenarios wherein the farm has not been owned for minimum 10 years.
- Scenarios where the farm has been leased either fully or partially for a minimum of 25 years.
- Scenarios where the farmer themselves were not working on the farm for a minimum of 10 consecutive years prior to the transfer.
- Scenarios where the farm is under joint names with an individual who does not have any involvement with the farm.
These scenarios may possibly be circumvented by use of Retirement Relief. It is important to note that although the relief is called “Retirement Relief,” one does not have to actively retire from the farm to avail of this, but it is a useful tool for situations where you need to transfer ownership of the farm, without finding yourself liable for CGT.
There are some conditions to the use of Retirement Relief as one might expect.
- If claiming Retirement Relief on medical grounds, medical evidence must be provided.
- If claiming Retirement Relief on age grounds, the individual must reach age 55 within 12 months of transfer.
The Relief can be broken into two types depending on who the farm is being transferred to:
1) Transfer to your child.
Full relief can be claimed if the farmer is between 55 and 65 years of age at the time of transfer, after 66 years of age, the relief amount is capped at €3m.
The child receiving the farm must hold the farm for a minimum of 6 years, or CGT will be charged, and the relief will be forfeit.
2) Transfer to someone outside of the family.
Full relief can be claimed if the market value of the farm does not exceed €750,000 for individuals under 66 years of age, and €500,000 for individuals over 66 years of age.
It is vital to remember that these are lifetime limits, and the farm may not exceed these limits or the risk of being charged CGT remains.
We hope that this information has been of interest to you, and should you like us to cover more farm-related topics please do let us know as we would be happy to oblige.