Sale of (gifted) tractor. Tax implications?

[MolaahMatters]

My mother inherited Dad's farm. Basically, everything transferred to her. Probate and all that stuff was finalised sometime last year. The farm is now leased and has been for a while.

Tractor now needs to be sold. Some questions have popped up!

One detail that might matter. The tractor was bought new and was depreciated in the farm accounts fairly quickly. So if mum was to sell it we think she would be liable for income tax on it.

But even before that arose, we thought perhaps she could gift it to one of us. We'd sell it and keep the proceeds*

While the bigger (and more immediate) stuff was covered off with the accountant at the time e.g. sale of animals, leasing of the farm etc, the tractor wasn't. (We'll square whatever we do here off with them but curious is there is an angle we've missed.)

I realised recently from looking at some other the gifting route might make the most sense. The thinking being, it wouldn't be subject to CAT on it (or income tax for that matter when it's sold).

Assuming that's true, I'm wondering if there are any implications on the farm accounts / mums side. For the avoidance of doubt sole trader set up (farm in mums name now).

Not sure if it matters from a tax perspective... but the tractor is still in Dads name, but before it's advertised we want to be clear on the implications. Tractor is valued at ~€25k.

*Perhaps it should have been willed separately at the time. But it wasn't.

 

[mathepac]

If probate was completed last year, contact the executor and let the executor contact the solicitor (if any) they used. Why wasn't registration, tax & insurance taken care of at the time? If it's being used or if it is stolen I'd suspect it's not insured.

 

[MolaahMatters]

If probate was completed last year, contact the executor and let the executor contact the solicitor (if any) they used. Why wasn't registration, tax & insurance taken care of at the time? If it's being used or if it is stolen I'd suspect it's not insured.

I wasn't dealing with that side of things but a good question re ownership cert. Know the tractor tax has been paid on it.

On the insurance side...farm and home are all in mum's name now. Tractors are listed on that (we're keeping one of them). Parked up at the moment as of 2023 but still theft risk etc so yes needs to be squared off.

I get why you're asking re the ownership cert. Surprised it never came up when dealing with solicitors. I had been meaning to ask the executor about it (family members). Thinking about it, can a probate be considered to be complete in this case?

Thanks for your comment.

 

[mathepac]

Does listing a tractor on the farm/house insurance cover it for use on a public road? I'm sure it's fine on private property, but not otherwise I suspect. I'm not an expert on these matters, but better safe than sorry.

 

[MolaahMatters]

Does listing a tractor on the farm/house insurance cover it for use on a public road? I'm sure it's fine on private property, but not otherwise I suspect. I'm not an expert on these matters, but better safe than sorry.

It's not on the road at all these days. When it was the policy was in the "Reps of the late.."

I think you're asking there whether a farm/house policy is appropriate for a vehicle (as opposed to whether the tractor not being in mum's name is an issue). It's an FBD farm (multi-peril) policy and yes the tractor aspect is for road use. The home insurance cover is somewhat incidental as I guess FBD built those policies around the idea that private dwelling houses are very often on small holdings (better for them commercially too probably). I kinda know this space, the ownership cert thing is not a major concern for me re them covering it. No insurer would pull the "you've no insurable interest in the vehicle" in a case like this. But it should be put right.

Anyway a bit of a segue. All the same thanks for your questions

Still curious about the tax implications. Certainly, dont want to be doing multiple ownership transfers on the tractor cert if it can be helped.

 

[Cervelo]

Assuming that's true, I'm wondering if there are any implications on the farm accounts / mums side. For the avoidance of doubt sole trader set up (farm in mums name now).

Not sure if it's applicable in this situation but would VAT not have to be applied to the sale/gifting of the tractor given that its part of the business

 

[T McGibney]

Not sure if it's applicable in this situation but would VAT not have to be applied to the sale/gifting of the tractor given that its part of the business

Come on! Only a tiny percentage of farmers - pretty much exclusively a small subset of those running other off-farm businesses - are VAT registered and need to account for VAT.

 

[MolaahMatters]

Not sure if it's applicable in this situation but would VAT not have to be applied to the sale/gifting of the tractor given that its part of the business

Wasnt VAT registered so VAT was paid when it was bought first. Good point though.

I mentioned that we thought Mum might be liable for income tax if she sold it (given it was depreciated in the farm accounts). Being an asset, would it fall under capital gains (rather than income tax)? Perhaps with inheritances, the depreciation point doesn't come into it. As in it would only have been Dad's potential tax liability if he had sold it...

Even so, the more likely route we go is gifting it if it makes sense.

Perhaps it's a bit technical for a forum, but personally, I always find it useful to see other people's threads on these topics before speaking to the accountants, so firing it out there to get the wheels turning

Overall, don't want to run into any gotchas.

 

[Ciru75]

Is your mum continuing the farm business?

If the tractor is a business asset, the sale would have to be included in the business accounts and included in the income tax calculation. If it's simply an asset that was willed to her, she can sell it with no tax consequences.

Gifting the tractor won't change the tax implications for your mum. As a connected party, the market value would apply for tax purposes and you'd needlessly use up some of your CAT allowances.

VAT and capital gains don't apply. She's not VAT registered as you said and a tractor would be considered a wasting chattel for CGT purposes (regardless of the fact that it's unlikely to be sold for more than it was bought for).

 

[T McGibney]

If the tractor is a business asset, the sale would have to be included in the business accounts and included in the income tax calculation. If it's simply an asset that was willed to her, she can sell it with no tax consequences.

Only partly true. She inherits it at open market value from her late husband, with no tax implications. If she continues the farming operation, it will be a commencement of trade, and if or when she later sells the tractor she will have to include a balancing charge or balancing allowance on any marginal gain or loss compared to the open market value on acquisition.

This stuff by the way is intricate and a bit painful to explain but in practice is relatively simple.

The OP would be well advised to stop worrying and let their accountants do their job.

 

[T McGibney]

The farm is now leased and has been for a while.

Tractor now needs to be sold.

I've just seen this now,

The issue is a nothingburger.

She inherits it at open market value from her late husband, with no tax implications. She now sells it, again at open market value. There's unlikely to be any appreciable rise in its value in the meantime. So there are no tax implications on its sale.

I'm not sure about where the idea of gifting it to someone came into play. That wouldn't alter the above position and someone would presumably be left with a tractor they didn't need, and a diminished CAT threshold.

The OP should refer to their accountants. It's too easy to get mixed up on the minutiae here.

 

[AAAContributor]

While the bigger (and more immediate) stuff was covered off with the accountant at the time e.g. sale of animals, leasing of the farm etc, the tractor wasn't. (We'll square whatever we do here off with them but curious is there is an angle we've missed.)

Are you sure the tractor wasn't factored in for income tax purposes at the time of your Dad's death? It looks like the farming trade carried on was ceased and so if capital allowances were being claimed up to that point, a balancing allowance/charge would have been factored in for income tax purposes in your Dad's tax computation at that point.

It looks like your Mum did not continue the farming trade and has been in receipt of rental income since.

Just sell the tractor and your Mum can distribute the €25k proceeds among you all using the small gift exemption.

 

[MolaahMatters]

Thanks for the replies.

Knew this would be one for the accountant. But decided to ask here first for a couple of different reasons.

To clear up some things, the main one: it's not the case that the farm was leased out right away.

Only partly true. She inherits it at open market value from her late husband, with no tax implications. If she continues the farming operation, it will be a commencement of trade, and if or when she later sells the tractor she will have to include a balancing charge or balancing allowance on any marginal gain or loss compared to the open market value on acquisition.

—Yes the farming trade was carried on...for 18 months or so after Dad passed (part winding things down slowly and part deciding what to do with the homeplace farm, mid covid etc).
—Herd stuff eventually ended up in Mum's name.
—So yes, Mum would have commenced the farming trade. Still a nothingburger?

Are you sure the tractor wasn't factored in for income tax purposes at the time of your Dad's death?

Not sure. But perhaps this doesn't come into it? given farming trade wasn't ceased right away!

One of those cases where the main part of the farm was leased out, but a few cattle were kept around the homeplace, but then we sold the rest of them and the remaining land was leased out.

Hence no need for that tractor, now.

***

I'll add a comment on the gifting thing.

It came into play because someone thought it might mean that mum wouldn't have to pay tax on the tractor's disposal in that case. I dont know why the accountant wasn't asked directly about it last year. But it was a case of ....why would we have Mum sell it, pay tax on it....when the money would eventually be passed to one of us. Money which would be as well passed now in some form.