The transfer of farms down to the next generation is a huge decision and one that should not be taken lightly. Many issues arise that need to be addressed which can be practical, financial, personal concerns or as follows:-
There are three taxes commonly involved when lands are transferred and we will look at the tax position under those three headings:
Transfers of property, including family farms are subject to gift tax and the tax is charged on the current market value of the farm. There is a tax free threshold of €310,000.00 for a son/daughter and all gift/inheritances taken since 1991 are taken into account to calculate this. The thresholds are generally less for other relatives and particularly for people who are not related.
However, there is a tax relief that can be used to transfer agricultural assets called “agricultural relief”. This reduces the value of the land and any qualifying farming assets and a farmhouse to 10% of its actual value where the beneficiary is deemed to be a “farmer”. “Farmer” in this context does not mean somebody who actually farms but is actually a financial test and in this context means a person whose farming assets (including the value of the current gift) exceed 80% of their total assets. Gift tax on the excess of the property that is not within the threshold is taxed at 33% currently (2014).
Stamp duty is charged at 6% on the transfer of farmland but a reduced rate of 1% currently applies where the transfer is to a family member but this relief is set to be abolished with effect from Dec 31, 2014. Stamp duty is charged on the current market value and accordingly a current auctioneer’s valuation will need to be obtained in this regard.
However, there is a full exemption from stamp duty in the case of a transfer to a young trained farmer. This exemption from stamp duty is to encourage the transfer of farmland to a new generation of farmers with relevant qualifications. The transfer may be by way of gift or sale.
In order for a young trained farmer to benefit from this exemption, there are a number of criteria to be met first;
The exemption is set to continue up until the 31st of December 2015.
When somebody transfers property that is not their family home, capital gains tax is charged on the difference between the value of the land when they acquired it and the sale price. Even if the property is transferred by way of a voluntary transfer where no monies pass, the relevant value is its current market value.
Tax is charged at 33%. There is relief, however, provided to farmers over 55 where the property has been farmed by them for the previous ten years. (There are relieving provisions where the land has been let.) There are certain restrictions when the farmer is over 66 (from 2011 onwards) but in general these are not onerous restrictions.