Hi sealine,
This is a common enough question for farm families where the older farming generation are winding down and the next generation have developed a non-farm career but still want to keep the farm in the family name.
Tax is always the main concern as generally on the passing of wealth between people the Revenue like to get a slice of the action.
However in your case the news might not be all bad.
The tax consequences have to be looked at from your parents position as well as your own.
Dealing with your parents first- the main tax for them handing over the asset during their lifetime is Capital Gains Tax (current rate 20%).
There is however a relief from this tax called Retirement Relief which has the following conditions
1. Owner must be over 55 years (i presume your parents qualify here- both will need to qualify if they are joint owners)
2. Assets must have been owned for the previous 10 years prior to transfer (again I’m presuming this will not be a problem in your parent case)
3. Assets musthave been used for the previous 10 years prior to transfer (‘used’ in this case means not let or leased – so this might be a problem)
However luckily enough Finance Act 2007 brought in a change that where disposals of land are to a child (that'd be you) then provided
· the land had been used for 10 years prior to first letting and
· the total period for which the land has been let before disposal is not greater than 15 years
then qualification for Retirement Relief is still an option. So you will need to check this out.
Also another potential problem would be if the land is in your parents joint names but the farming business (herd number, bank account, farm accounts) are or were (up to the time they stopped farming) in your fathers name then the Revenue may deem that your mothers half of the farm has not been used by her and she will have to pay Capital Gains Tax on transferring her half of the jointly owned property to you
Basically if they qualify for Retirement Relief they will pay no tax on the transfer of the farm to you. If they don’t qualify for the relief then usually the case is that you it makes more sense to let the farm transfer on death. There is no CGT payable on death.
As regards yourself the 2 main taxes you need to worry about are Capital Acquisitions Tax and Stamp Duty.
Capital Acquisitions Tax (CAT) will be a concern regardless of whether you get the farm as a gift from your parents during their lifetime or as an inheritance on their death. This tax is also levied at 20%.
There is a threshold of €521,208 of asset value below which you don’t pay tax (and you can take this amount from both your father and mother if the farm is jointly owned). This threshold on its own is not usually enough to get you out of trouble as with land values the way they are you’ll be up above that value with a fairly small farm.
There is a relief called Agricultural Relief from CAT which if you can qualify for it will usually mean you pay no CAT. To qualify you need to calculate the value of all your assets (your house, cash, investments, other non-farm property) add on the value of the farm assets from your parents and if 80% of this total figure are farm assets then you should qualify. If you do qualify you will need to hold onto the farm assets for at least 6 years after getting them otherwise you could end up paying the CAT.
I would say that if you can’t qualify for this relief now then don’t have your parents transfer the farm now. Get advice from a tax consultant and work out how you can structure your affairs to make sure that you will qualify for Ag. Relief for a future transfer (either as a gift or inheritance). Structuring your affairs may mean using spare cash to buy farm assets, putting your home into your wife’s name etc.
It would be a disaster in my view to take possession of the farm and not avail of this relief as you would end up with a hefty bill which might mean selling some of the farm assets (or your other assets) to pay it.
Stamp relief is the other tax that will apply but it will only apply in the case of the farm being transferred while your parents are alive. There would be no stamp duty on an inheritance on their death.
The stamp duty rate that will probably apply in your case would be the highest rate (for values of assets above €150,000). This would normally be 9% but since you’re a relation this rate is cut by half so that means 4.5% in your case or on a farm worth €1m that would be €45,000 which must be paid within 30 days of the transfer going through.
There is a relief from this Stamp Duty if you qualify as a young farmer but as you need to have certain qualifications for this and you mentioned you don’t have any than I’d say you’ll be stuck with paying the tax if you get the farm as a gift from your parents.
As already said by another poster – get detailed advice from a qualified tax professional (or accountant) sooner rather than later and definitely before you go down the road of transferring anything. The rough outline of the taxes involved provided above should give you an idea of what questions to ask.
Regards,
laragh