Written answers

Wednesday, 3 November 2010

9:00 pm

Photo of Paul KehoePaul Kehoe (Wexford, Fine Gael)
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Question 122: To ask the Minister for Finance the options available to a person (details supplied); and if he will make a statement on the matter. [40724/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The query relates to a farmer transferring his property to his sons. I am advised by the Revenue Commissioners that the following would be the position for Capital Gains Tax (CGT), Capital Acquisitions Tax (CAT) and Stamp Duty. Capital Gains Tax (CGT)

The transfer from father to sons would be a disposal for CGT purposes, but the person making the disposal may be entitlement to "retirement relief". If at the time of transfer, the farmer was aged 55 years or more and had owned and farmed the land for the ten years immediately preceding the transfer, the disposal to his sons would be entirely free from CGT.

Retirement relief would also apply, to a transferring farmer aged 55 years or more, in two other circumstances - if the land had been let at any time in the period of 15 years ending with the disposal, and immediately before the land was first let in that period of 15 years, the land had been owned and farmed by the farmer for the period of ten years immediately preceding the date of first letting, or the land had been subject to the Scheme of Early Retirement from Farming and immediately before entering the scheme, the land had been owned and farmed by the farmer for the preceding ten years.

If retirement relief was available to the farmer and the sons disposed of the assets transferred within six years of acquisition, then the sons would be charged on the relieved gain of the father, in addition to any gain of their own on the disposal. Capital Acquisitions Tax (CAT)

CAT includes both gift and inheritance tax. The transfer of a farm by a farmer to his two sons is a gift and a charge to CAT may therefore arise on the gift taken by the sons. The current rate of gift and inheritance tax is 25%.

The CAT code, however, includes tax-free thresholds based on the relationship between the person who provides the gift or inheritance (the disponer) and the person who receives the gift or inheritance (the beneficiary), below which no CAT is payable. The tax-free threshold applying to a gift taken by a child from a parent in 2010 is €414,799. Each child is separately entitled to receive up to this amount from parents before any CAT would be payable. Any other gifts or inheritances received by a child from his parents since 5 December 1991 are also taken into account when applying the tax-free thresholds for the purpose of calculating CAT.

The CAT tax-free thresholds are adjusted on an annual basis by reference to the Consumer Price Index as published by the Central Statistics Office.

The sons, apart from their separate CAT tax-free threshold of €414,799, may also each be entitled to CAT agricultural relief, which reduces the value of agricultural property for CAT purposes by 90%. In order to qualify for CAT agricultural relief, 80% of each child's total assets, after having received their gift, must consist of agricultural assets.

Therefore, overall, if each of the sons is entitled to claim CAT agricultural relief, each son can effectively take a gift of agricultural property up to the value of €4,147,990 from his father before any CAT would arise on the gift. The value of €4,147,990 would be reduced by 90% Agricultural Relief to a net value of €414,799 and each of the sons would also then be separately entitled to claim their CAT tax-free threshold of €414,799 from parent to child and thus no CAT would be payable.

Therefore, if the sons were entitled to Agricultural Relief on the lands transferred to them by their father, no CAT would arise on either son once the value of the lands received by each son was below €4,147,990. This also assumes no other gifts or inheritances were received by either child from the parents since 5 December 1991.

Other reliefs from CAT may apply in certain circumstances – for example, if part of the property transferred is a dwelling house occupied by one of the sons as his only or main residence, he may be able to claim dwelling house relief.

Finally, in the event that a charge to both CAT and CGT arose on the gift of agricultural property by the father to the sons, then a credit for the CGT paid by the father would be allowed against the CAT payable by the sons to avoid double taxation on the same event.

Stamp Duty

A gift of land attracts a stamp duty liability based on the market value of the land transferred. The rates of stamp duty which apply are set out in the table below. The stamp duty payable is reduced by 50% in the case of a property transfer from a parent to his children.

Section 81AA of the Stamp Duties Consolidation Act 1999 provides for an exemption from stamp duty on the transfer of agricultural land to a farmer who is under 35 years of age and who is the holder of certain educational qualifications which are listed in Schedule 2B of the Act.

Table

Market ValueRate of Duty
Up to €10,000Exempt
€10,001 to €20,0001%
€20,001 to €30,0002%
€30,001 to €40,0003%
€40,001 to €70,0004%
€70,001 to €80,0005%
Over €80,0006%

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