Farm Transfers

The transfer of a family farm to younger generations is a big decision for any farmer and the farmer should speak with their solicitor in advance of any proposed transfer to see what options are available and to find the best solutions for you. Of particular importance for the farmer when considering a transfer of the farm is at all times to ensure that they have sufficient income for the future for themselves and their family.

Other issues to consider would be the transfer of farm entitlements such as single farm payment, reps, milk quota, etc., and of course any taxes that may fall due.

There are three taxes that have to be considered in the transfer of a farm :

1. Capital Gains Tax (CGT) – on the parent transferring the farm;
2. Capital Acquisitions Tax (CAT/Gift/Inheritance Tax) – on the child receiving the farm; and
3. Stamp Duty – again, on the child receiving the farm.

Capital Gains Tax (CGT) is a tax charged on the capital gain (a profit) made on the disposal of any asset. It is payable by the person making the disposal – not the person receiving the property. The gain/profit is the difference between the price you paid for the property/value at the time you received the property and the price you sold it for.

In the context of farming, where a farm often passes from generation to generation the gain/profit in this situation will be the difference in the value of the farm at the time you received it measured against the value of the farm when you are transferring it.

We have seen a significant increase in the rates over the years. The current rate of Capital Gains Tax (CGT) is 33%.

What assets are liable to Capital Gains Tax?

Generally, any land, farm buildings, and other assets of the farm including Single Farm Payment entitlements.

Disposal of a farm to a child 

At the moment full relief from CGT is available where a farm is being transferred by a farmer who is over 55 to a qualifying son, daughter or a favourite niece/ nephew. No Capital Gains Tax will arise provided that the farm was owned and was used by the farmer for farming purposes in the 10 years prior to disposal. Where a farm is being transferred by a farmer over the age of 66, there is an upper limit of €3m in terms of the relief available.

The reference to child above includes:

• an adopted child;
• child of a deceased child;
• a nephew or niece of the individual provided certain conditions are complied with; and
• a foster child provided certain conditions are complied with.

Disposal of a farm other than to a child

Providing that certain conditions are met and where the sale proceeds are less than €750,000, a farmer over 55 years may dispose of part or all of his farm free of Capital Gains Tax. For individuals who are over the age of 66 years the limit of €750,000 is reduced to €500,000.

Capital Acquisitions Tax (CAT/Gift Tax)

Similar to CGT, there has been a significant increase in the rates over recent years. The current rate of Capital Acquisitions Tax is 33%.

In addition, there has been a significant reduction in the Group Tax Free Threshold applicable to gifts from parents to children. The current tax free threshold is €335,000. Current reliefs from CAT on the transfer of a farm include Business Relief, Agricultural Relief and Favourite Nephew/Niece Relief, which reduces the taxable value of the chargeable business assets by 90%. Click on the link to your left for further information on theses reliefs.

The rate of duty will be determined by the circumstances in relation to the sale or transfer:

a) Transfers between closely related persons will attract a rate of 1%, subject to certain conditions – i.e. that the individual to whom the land is transferred must, from the date of the transfer, farm the land for a period of not less than 6 years, or lease it for a period of not less than 6 years to an individual who will farm the land.

b) Purchases by or transfers to unrelated parties will attract a rate of 7.5%, unless the purchaser or transferee is a young trained farmer and is setting up for the first time (previously was 6%).

c) Purchases by or transfers to young trained farmers are exempt from duty subject to certain conditions.

d) In general, leases of agricultural land are currently subject to stamp dutry at a rate of 1% of the first years rent.

e) The rate of duty on residential property is 1% up to €1m and 2% above €1m

There is no Stamp Duty on transfers between spouses.