Selling land can be a touchy subject in any household and it is priority number one to consider all of the tax implications beforehand. There are many pitfalls when it comes to selling land and lots of people fall into these holes due to rushed sales and poor tax planning.
When selling land, Capital Gains Tax (CGT) is chargeable in Ireland at a rate of 33%. However, farmers may be able to reduce this bill if they qualify for certain reliefs.
Farm Consolidation Relief
Farm Consolidation Relief refers to the stamp duty charged on the purchase of land. The standard rate of stamp duty on land is 7.5%. However, if you are selling land and purchasing land closer to your farm, then you will qualify for a reduced rate of stamp duty of 1% on the new farmland you are purchasing.
Once the relevant conditions are met and the value of the land being purchased is a higher value than the land being sold, you will qualify for the reduced rate.
It is a lesser-known relief and should be considered if you are thinking of the financial benefit of selling land to purchase land closer to your farm. The purchase and sale must take place within a 24-month period.
Farm Restructuring Relief
Farm Restructuring Relief refers to the CGT element of consolidating your farmland. If you are disposing of farmland for re-structuring purposes, syou may qualify for a CGT relief. If you meet the required criteria, you will receive full CGT relief on the sale of your land.
You must obtain a Farm Restructuring Certificate from Teagasc and you will qualify for full relief when the purchase price of the new land exceeds the sale price of your original land. This relief is a clever way to consolidate your farm and is an incentive for more efficient farming closer to your main block.
Retirement Relief
You may be entitled to Retirement Relief if you are between 55 and 66 years of age and sell your business or farmland. If you sell to someone other than your child and the market value at the time of disposal does not exceed €750,000, you will receive full relief from CGT.
For a person over the age of 66, the threshold is reduced to €500,000. If it exceeds the threshold, you may be entitled to marginal relief. To qualify, you must also have owned the land for at least 10 years. This does not apply to tangible assets such as plant and machinery.
Entrepreneur Relief
Entrepreneur Relief is often the next option if you do not qualify for Retirement Relief. This relief reduces the rate of CGT to 10% (down from 33%) on the disposal of qualifying business assets. There is a lifetime limit of €1m on the gains you can claim relief on. To qualify, you must have owned the business assets for a continuous period of three years. The three years must be in the five years immediately prior to disposal. The asset must also have been used for a qualifying business, of which farming is one of these.
Qualifying business assets are shares held by an individual in a trading company or an asset owned by a sole trader and used in their trade, the example here being farmland used in farming.
Entrepreneur Relief is a very good backup plan if you do not qualify for Retirement Relief and would still like to dispose of your land in the most tax-efficient way possible.
Example
John is 72 and sells his farmland for €570,000. He originally purchased the land for €100,000. He cannot claim full relief as he is over 66 and the land was sold for more than €500,000. If John did not qualify for any relief, he would have a CGT liability of €154,680.
€570,000
- €100,000 (cost)
= €470,000
– €1,270 (Personal Allowance)
= €468,730 (Chargeable gain)
x 33%
= €154,680
However, because John meets the criteria for Retirement Relief, he can claim marginal relief. Marginal relief limits CGT to half the difference between the sale price and the threshold. This will leave him with a CGT liability of €35,000 (€570,000 - €500,000 (threshold)= €70,000/2).
Conclusion
Land and asset disposals can be tricky to navigate, which is why it is always important to consult with a financial specialist in these circumstances. They will help you dispose of your land in the most tax-efficient way possible as well as helping you to plan for the future effectively.