Your Money: wills and tax considerations

A will can be changed at any time with changing family circumstances, which is the normal progression of family life. When family circumstances - to all natural intents and purposes - are settled, it is an opportune time to discuss within the family how best to deal with the assets going forward for the next generation. A will may be the best way forward, where the assets pass by inheritance, or it may be more opportune to pass on the assets as a gift – ie a within-lifetime transfer of the assets.

In our modern society there is an increasing diversity within family units. As these family units evolve over time, it is important that each person who is, or considers themselves, a party to that family unit fully understands their rights (or, in some cases, lack of rights) when it comes to the passing on of assets.

Good succession planning can be done by will, gift or a combination of both. The transferring of property and assets is a serious lifetime consideration and should not be taken lightly. Discuss your plans and intentions with all relevant professionals. Identify your best options and, better still, discuss these within your relevant family unit.

More difficult situations arise in the case of fractured and reformed family units, or even single property owners where next of kin are siblings and/or nephews and nieces. In such cases you may have to rely more heavily on the advice of professional advisers.

Taxation issues often frighten people away from the subject of succession planning. This issue is best dealt with on a proactive basis to avoid undue tax burdens arising for beneficiaries from your estate. The main tax heads to consider are outlined here.

This is the tax payable by the owner of the property if they sell or transfer it during their lifetime. It does not apply to assets passing on the death of the owner, regardless of who the beneficiary is.

Farmers who are over 55 years of age will qualify for retirement relief from capital gains tax on the transfer of land provided they have farmed that land for 10 years prior to transfer.

A farmer does not have to fully retire from farming to avail of this relief. They can qualify on the transfer of part of their farm. While there are some upper limits to this relief depending on the relationship between the owner and transferee; within families all transfers are free of capital gains tax if the owner is between 55 and 66 years old.

If the owner is over 66, an upper limit of €3m will apply. Availing of this retirement relief could form all or part of good succession planning.

This is the tax payable by the person acquiring assets either by way of will or gift. The amount of assets which can be acquired tax free depends on the relationship to the disposer.

These could impact severely on the transfer of farmland to succeeding generations. However, certain reliefs are available. The main relief to consider is agricultural relief under the “80% rule”. To qualify for this, the beneficiary of the assets must, after taking ownership of the assets, have at least 80% of their assets as agricultural property.

In this calculation, any mortgage debt on a principal private residence is discounted from the non-agricultural assets. Beneficiaries meeting the “80% rule” will qualify for a 90% reduction in the value of agricultural assets acquired for capital gains tax purposes.

If a beneficiary does not satisfy the “80% rule”, they can consider business relief where the farming business is being transferred as a going concern (ie is actively farmed by the owner and has been for the previous five years, in the case of a gift, and two years in the case of an inheritance). Business relief also qualifies for the 90% reduction in asset valuation.

There are conditions relating to availing of this relief:

The beneficiary must

a Be the holder of an agricultural qualification which also qualifies them for stamp duty relief.

Or

b Farm the land for six years following acquisition.

Alternatively, a beneficiary can:

a Lease the land to the holder of an agricultural qualification for not less than six years.

Or

b Lease the land to an individual who will spend at least 50% of their normal working time farming land including the gifted/inherited land.

This tax applies at 1% of the value of the land acquired by way of gift or inheritance. The beneficiary will be exempt from this tax if they have a level 6 or higher agricultural education qualification, the land is transferred and the instrument stamped with revenue before their 35th birthday. If the beneficiary does not have the necessary agricultural qualifications prior to stamping, they can pay the stamp duty on the transfer and, if they get the required qualification within four years, they can claim back the stamp duty paid.

A good succession plan is key

When it comes to family succession, seek advice from all relevant professionals, discuss within your family circle and put a plan in place. Be aware of the tax implications, limitations and constraints.

A good succession plan will keep everyone concerned as happy as possible, and the benefits within the tax system can be exploited and used to best advantage to protect the assets of your lifetime’s work.