Taxation

STOCK RELIEF / FARM PARTNERSHIPS: Stock relief can be claimed against taxable farm income where the person’s closing trading stock value is greater than the opening stock value. A new stock relief incentive has been introduced in this year’s Budget to encourage farm partnerships. An enhanced 50% stock relief will be available for all registered farm partnerships, and a 100% stock relief will be available for certain young trained farmers forming such partnerships.  Subject to EU State Aid approval, this new incentive will be available until December 2015.

STAMP DUTY: Reduction in the stamp duty rate on agricultural land from 6% to 2%, effective immediately. A half rate (1%) will be applicable to transfers to close relatives until the end of 2014.  This change will substantially reduce the stamp duty payable on transfers of farm land by gift or by sale. It should stimulate a stagnant land market and will also promote inter-generational transfer, with the cost of lifetime transfer to transferees who do not qualify for the young trained farmer stamp duty relief reduced considerably.

CAPITAL GAINS TAX: CGT arises where there is a disposal of an asset, through a sale, gift or other transfer. This year’s Budget introduces a restructuring of the retirement relief on Capital Gains Tax to incentivise the earlier transfer of farm assets to the next generation, and to encourage the sale of land by those farmers with no successors.  An upper limit of €3m will be introduced on family transfers where the individual transferring is aged over 66, compared to an unlimited amount currently.  On non-family transfers, the current upper limit of €750,000 will be reduced to €500,000.  These changes will apply from 1 January 2014 onwards, thereby allowing time for older farmers to plan for transfer. These changes will aid land mobility and improve the age profile of Irish farmers. 

CGT retirement relief asset valuation limits from 1 Jan 2014

Type of disposals

Age band and asset limits for individuals claiming retirement relief

 

55-66 years

Over 66

Unrelated disposals

€750,000

€500,000

Related disposals

Unlimited

€3,000,000

 

A property bought during this period and held for at least seven years will be relieved from Capital Gains Tax. It is important to remember that these new measures do not mean that a farmer is forced to cease farming altogether beyond the age of 66. For example, a farmer with a farm worth in excess of €3,000,000 could under the new rules transfer a part of his farm to the next generation before reaching the cut off point of 66 and could continue to farm on the remaining part while in receipt of retirement relief, thereby adopting a phased transfer of his land.

OPEN FARMS: The VAT rate applied to open farms (such as pet farms) will be 9% rather than the new standard rate of 23%.  This will be of significant benefit to such farms, which offer an important opportunity for farm diversification. 

UNIVERSAL SOCIAL CHARGE: The exemption rate for the Universal Social Charge has been raised from €4,004 to €10,036.  This will be of particular benefit to low-paid seasonal workers in the farming sector.

CARBON TAX: Farmers will be allowed a double income tax deduction in respect of the increased costs arising from the change in carbon tax (the carbon tax is to increase from €15 per tonne to €20 per tonne, from 1 May 2012 for agricultural diesel). Full details will be presented in the Finance Bill.

WIND TURBINES: An amendment to the VAT refund order for farm construction will allow farmers to claim a refund on wind turbines purchased from 1st January 2012.

R&D TAX CREDIT AND FOREIGN EARNINGS DEDUCTION: Additional supports which will benefit the food industry including improvements to the R&D tax credit and a Foreign Earnings Deduction to apply where an individual spends 60 days a year developing markets for Ireland in the BRICS countries (Brazil, Russia, India, China and South Africa). 

CAPITAL ACQUISITIONS TAX (CAT): The CAT rate has increased from 25% to 30% and the tax free threshold for Group A has been reduced from €332,084 to €250,000. It is worth noting that farms worth up to €2.5m will continue to be fully exempt from Capital Acquisitions Tax with regard to transfers to a son/daughter or qualifying favourite nephew/niece. In addition, the impact of the changed measure on a farm worth €3m would amount to €15,000 CAT.

CAT EXAMPLES:

Threshold A (Son/daughter & can include favourite niece/nephew)

  • Agricultural assets up to the value of €2,500,000 will not be liable for CAT,
  • Agricultural assets of €3,000,000 will be liable for €15,000 in CAT (nil prior to this),
  • Agricultural assets of €3,500,000 will be liable for €30,000 in CAT, representing an increase of €25,521, and
  • Agricultural assets of €4,000,000 will be liable for €45,000 in CAT, representing an increase of €28,021.

Threshold B (Parent**/Bro/Sis/Niece/Nephew/Grandchild)

  • Agricultural assets up to the value of €2,500,000 will be liable for €65,038 in CAT, representing an increase of €10,840.

Threshold C (Relationship other than A or B)

  • Agricultural assets up to the value of €2,500,000 will be liable for €70,019 in CAT, representing an increase of €11,670.