Land sales

Hi All, I made an inquiry today about buying a piece of land from a farmer. This was for a site subject to PP.

The farmer told me that he wasn’t interested in selling the land because of tax reasons. He had previously sold residential land about 7 years ago and if he sold a second piece of land for this purpose it would have high taxes applied?

Does anyone know anything about this?

ThankS.

Yep, it sounds like he's telling he's up for a cash deal. Personally I wouldn't go there. The rest of us all live within the Tax system, but Farmer Mick thinks he's special. Find another farmer who isn't so greedy and want to avoid the tax system.

No, I wont go down that route either. I didnt get that impression from him. In fairness to the farmer, he didnt make any reference to that and my father tells me hes a decent man.
I was just wondering if there was a high tax for selling land for the 2nd time? and if there was any time limits on this. i.e. would the higher tax for a 2nd sale only last 10 years or so? thanks.

It can take years to get planning if ever, maybe he just couldn't bothered with all the hassle but didn't want to give a straight out no.......but did they not introduce some windfall tax on land profits or something ?

Capital Gains tax has risen from 20% to 33%. I guess thats what he's talking about.

Under the windfall tax legislation, a farmer is able to sell up to one acre of agricultural land for site purposes without attracting windfall tax, however if there are a series of similar transactions then the windfall tax at the rate of 80% may apply. He might also be worried about this

mercman said:

Yep, it sounds like he's telling he's up for a cash deal. Personally I wouldn't go there. The rest of us all live within the Tax system, but Farmer Mick thinks he's special. Find another farmer who isn't so greedy and want to avoid the tax system.

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How do you deduce that?

Note that there is no such thing as a "cash deal" for conveyances of land. All land ownership changes are a matter of public record. Furthermore all conveyance contracts must include PPS numbers and are routinely available to Revenue.

The present 33% CGT rate, in addition to the windfall tax, means that many property owners are simply not interested in disposing of property at the moment. Declan Ganley explains this in some detail in last weekend's Sunday Business Post.

The farmer may have been able to claim retirement relief on the other sales - and so avoided any tax. However, this sale may take him over the threshold amount and so in addition to the tax on this, he could suffer a clawback of the relief on the earlier site sales.

This would apply in addition to the windfall tax.

If the issue is the windfall tax rather than the 33% CGT rate and/or retirement relief issues, then you should check whether or not he is actually exposed to it.

As I understand it (entirely open to correction though!), the 80% rate only applies to disposals of sites larger than an acre with market value in excess of €250,000.

So unless your proposed subject-to-planning purchase is of that scale, the windfall tax shouldn't be his issue.

I think his potential concerns have been pretty well summed up and could be a combination of any / all of:

1. Effect on retirement relief (easily avoided with proper planning on his part)
2. The rate of tax (he's kidding himself if he thinks it's going to go down again any time soon anyway. We'll never see CGT at 20% again in this country.)
3. The windfall tax (probably not an issue)
4. He wants to do an under-the-table deal (not really your concern, as long as the whole thing is done legit and above board from your side - as TMcGibney has said Revenue will catch up with him in due course anyway).

If you're serious about wanting the site, you should probably go back to him and make sure he's not labouring under a misapprehension that's stymying you both...

mandelbrot said:

(he's kidding himself if he thinks it's going to go down again any time soon anyway. We'll never see CGT at 20% again in this country.)

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??. Evidence shows that CGT (& CAT) receipts increase as rates decrease. Obviously the govt couldn't sustain low CGT & CAT rates while the Troika were in charge but there is no reason why they would rule out a return to the more lucrative lower rates as a means of raising additional funds, at some stage in the future. I wouldn't be surprised if this happens relatively soon.

T McGibney said:

??. Evidence shows that CGT (& CAT) receipts increase as rates decrease. Obviously the govt couldn't sustain low CGT & CAT rates while the Troika were in charge but there is no reason why they would rule out a return to the more lucrative lower rates as a means of raising additional funds, at some stage in the future. I wouldn't be surprised if this happens relatively soon.

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I didn't really mean never ever, but I can't see it happening any time soon, within the time horizon of a crafty old farmer!

Depends on the Govt of the day I suppose - lowering income tax rates / increasing SRCOP for the coping classes would surely be a bigger vote winner than lowering CGT rates for the few... and they've a long way to come down with income taxes, relative to where they were in 2007.

The point is that lowering CAT & CGT rates should be self-financing, based on past evidence and current experience (the latter albeit anecdotal).

T McGibney said:

The point is that lowering CAT & CGT rates should be self-financing, based on past evidence and current experience (the latter albeit anecdotal).

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That only works up to a point though - for example a rate of 0.001% CGT will not yield more than a rate of 15% - where the point of diminishing returns is, must be pretty unknowable until afterwards, since at any given time in any given economy there are too many variables to predict with any accuracy the isolated effect of a rate increase/decrease.

In order for a rate of 20% to yield more than a rate of 25% it would require there to be about 20% more activity, all other things being equal.

The McCreevy experience would suggest that a dramatic cut in CGT & CAT rates can create its own momentum in swelling govt coffers.

I don't disagree, but can you say with any certainty (or with the ESRI behind you!) that if he'd cut it to 22% or 25% there wouldn't have been an even bigger jump in receipts...

Surprisingly to me, I meet people everyday who are 100% up to speed on the current rate of CGT and very quick to point out that they will be selling nothing as long as the current rate is in place. I think 20% was the rate that people were reasonably comfortable with paying tax on their capital. I support a view that lowering the CGT rate is likely to increase net returns.
Similarly, I think a widening of the band for basic rate of income tax will boost total income tax returns.

mandelbrot said:

I don't disagree, but can you say with any certainty (or with the ESRI behind you!) that if he'd cut it to 22% or 25% there wouldn't have been an even bigger jump in receipts...

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I wouldn't pay much heed to the ESRI. Over 25 years ago, Phoenix magazine described them as the Government's "Official Economic Lapdog", and it seems from the suppression of the Richard Tol "work v dole" report, amongst other difficulties, that little has changed since.

On the wider point, the tax system is not just a crude mechanism to raise the maximum amount of money and where high taxes have unduly baneful effects on economic activity, the Govt has an obligation to address and ameliorate these problems.

Dr.Debt said:

Surprisingly to me, I meet people everyday who are 100% up to speed on the current rate of CGT and very quick to point out that they will be selling nothing as long as the current rate is in place. I think 20% was the rate that people were reasonably comfortable with paying tax on their capital. I support a view that lowering the CGT rate is likely to increase net returns.
.

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I agree with Dr.Debt, it has been proven that lowering the CGT increases revenue. Increasing it reduces revenue for two reasons, it puts people off dispossing of property and it increases the incentive for people to do things off the books.

As Irish governments cannot help tinkering with the property market, eg new 7 year rule on CGT, recently extended, then I think they'll lower CGT in the future.

I'm one of those people who has decided not to sell as 30% is too much.

Coupled with eliminating the Windfall Tax on land, which has stifled the house building market, as 80% of profits made from a sale goes directly to the Tax man.

That 80% windfall tax demonstrates that the government have not got a clue about the operation of a taxation system in a normal economy.

I think that reducing tax rates can certainly attract sellers to the market but you do need to have buyers there to have transactions.

High rates and falling prices are a recipe for stagnation.

The governments over the years have interfered with the property market moving CGT rates up and down, granting property related reliefs and then withdrawing them! CGT exemption for property held for 7 years.