The Department of Agriculture has this week published new guidelines on farm restructuring relief.
This comes on foot of last year’s Budget announcement to extend both the timeframe under which this relief is available, and an expansion of the relief, to cater for whole farm replacements.
Basically, farm restructuring relief allows a farmer sell an outside block of land, and if that farmer reinvests the proceeds in purchasing other land closer to his or her existing centre of operations, any capital gains tax that would otherwise apply on that farmer’s disposal is avoided.
This is a particularly valuable relief; capital gains tax could otherwise apply on the disposal, at 33% of the uplift in value since the farmer first acquired the land.
On average, farmers in Ireland typically farm 3.8 separate parcels of land. This heritage of disaggregated and fragmented holdings is often cited as one of the stumbling blocks to efficient expansion, and this is particularly the case for grass-based dairy farmers, whose production is constrained by the amount of land physically accessible from the milking parlour (what is commonly referred to as the grazing block).
The purpose of the restructuring relief is to facilitate farmers who seek to consolidate their holdings. To date, it was focused on facilitating tax-efficient disposal of outside blocks of land, to acquire additional land closer to the home farm. Thankfully, the relief is broad enough to cater for purchase of land closer to the centre, rather than being restricted to purchase of lands at the bounds ditch.
It is worth noting that, following EU approval, the scheme is extended, to facilitate disposal of all land parcels by a farmer (a minimum of two parcels), where a farmer is replacing their land with an alternative holding.
Those looking to avail of the relief must carry out both the purchase and sale within a two-year timeframe, with the first part of the transaction (either purchase or sale) ocurring before December 31, 2016. Formal approval must be obtained from Teagasc, who will issue a Restructuring Certificate, if relevant conditions for the relief are in place.
The relief is available only in respect of farm land, and more specifically farm land in the State. Therefore, farmers should be careful in factoring in tax implications, where houses or other buildings are located on land to be bought or sold (or if some of the land is afforested).
Where a farmer sells land, and the entire proceeds are not reinvested, proportional relief will be available to the extent of the reinvested proceeds.
If the sale occurs prior to the purchase, capital gains tax will be payable on the sale in the normal manner, however, where the farmer satisfies the relevant criteria, upon the subsequent purchase of land, the capital gains tax payable on the first disposal can be refunded.
There is no requirement to replace land of equal size. Therefore, a farmer can for example dispose of a relatively larger amount of poor land to acquire a relatively smaller quantity of better land, so long as other criteria are satisfied.
The relief is targeted towards farmers, with one of the requirements being that the individual spends not less than 50% of their time farming. However, the relief has also been extended to cater for the disposal of land by an individual where that individual is farming their land through a farming company.
Similarly, the guidelines now extend and cater to some degree with partnerships.
The relief can cater for land swaps between consenting farmers, or the sale to and purchase from separate third parties.
The Farm Restructuring scheme deals only with capital gains tax, and farmers intending on taking up the scheme should also consider the other tax implications, such as the stamp duty costs of any land purchase.
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