Paul Kehoe (Wexford, Fine Gael)
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Question 231: To ask the Minister for Finance the criteria involved when two farmers are making a direct swap of land and where no money is being exchanged; if there are tax implications involved; and if he will make a statement on the matter. [8791/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am advised by the Revenue Commissioners that a direct swap of land, in the circumstances outlined, may have implications for taxation under three separate taxheads; namely capital gains tax, capital acquisitions tax and stamp duty. I will look at each in turn.

Capital Gains Tax (CGT)

The exchange of land is a chargeable occasion for both parties involved. The disposal proceeds are taken as the market value, at the date of exchange, of the lands disposed of. The CGT payable is calculated by reference to the difference between the disposal proceeds and the cost of the land exchanged after allowable adjustments for inflation and the costs of acquisition and disposal. The first €1,270 of an individual's annual gains is exempt. The balance is chargeable at 20%.

Relief from CGT is available where an individual, aged 55 years or over, disposes of all or part of his/her "qualifying assets". For the purposes of this relief "qualifying assets" include lands which have been owned by the individual for a period of not less than 10 years ending on the date of the disposal and have been used by the individual for the purposes of farming throughout the 10-year period ending with the disposal. The relief applies to considerations up to the value of €750,000 but where land is disposed of to a child, there is no limit to the relief.

Capital Acquisitions Tax (CAT)

Whether gift tax arises when two farmers make a direct swap of land and where no money is exchanged depends on the circumstances. Gift tax would not arise where the lands being swapped are of equal value. If the lands were not, however, of equal value, gift tax would arise on the difference in value. The person swapping the more valuable land (the disponer) would be treated as making a gift of the difference in the values. The beneficiary of the gift would be entitled to their tax-free CAT Group threshold, which depends on their relationship to the disponer, when calculating any gift tax liability. The indexed group thresholds applying to a gift or inheritance for 2007 are set out in the following table.

Any other gifts/inheritance that might have been received within the same group by an individual since 5 December 1991 are also taken into account when applying the thresholds for the purposes of calculating CAT. If the total value of all inheritances and gifts received since this date is above the relevant threshold, then a 20% CAT will apply on the difference.

Stamp Duty

In the case of an exchange of lands, stamp duty is payable on the basis of the value of the lands being exchanged. There is a relief from stamp duty in section 81B of the Stamp Duties Consolidation Act 1999 for an exchange of farm land between two farmers for the purposes of consolidating each farmer's holding. The section provides that stamp duty will not be charged on an exchange of land where the lands exchanged are of equal value. In a case where the lands exchanged are not of equal value, stamp duty will be charged on the amount of the difference in the values of the land concerned.

The main conditions which must be satisfied before the relief will be granted are that there must be a valid consolidation certificate issued by Teagasc in existence at the date of the exchange of the lands and that the farmers involved in the exchange of the lands must spend not less than 50% of their normal working time farming and must farm the lands exchanged for a period of at least 5 years from the date of the exchange. A clawback of the relief arises where the land or part of the land included in the exchange is disposed of or partly disposed of before the end of the 5 year holding period.

The relief under section 81B is due to expire on 30 June 2007. However, the Finance Bill 2007, as passed in Committee, contains a new section 81C to be inserted in the Stamp Duties Consolidation Act 1999 which will, if enacted, allow a farmer to claim relief where the farmer sells land and purchases land in order to consolidate that farmer's holding and both the sale and purchase occur within 18 months of each other. The relief will apply provided Teagasc has issued the farmer with a consolidation certificate in respect of the sale and purchase. Under the proposed new section 81C, each farmer involved in a direct swap of lands as outlined by the Deputy, would be entitled to claim the relief on the land transferred to him or her where, as a result of the transfer, the farmer's holding has been consolidated and a consolidation certificate has been issued by Teagasc in respect of the transfer. For the relief to apply, similar conditions in relation to the farming of the lands transferred and the retention of such lands, as referred to above in relation to section 81B, must be satisfied. I would point out that the introduction of the new stamp duty relief for farm consolidation is dependent on EU State aid approval.