Roll-over-relief abolition budget blow to farmers
While not directly part of the agreement between the farming lobbies and the NRA, the provision of roll-over-relief “was an extremely important supplementary measure to the agreement”, says IFA Press Officer, Jim Devlin.
The turnaround will have a serious impact on farmers who already have suffered disruption to their farms, and the IFA will be carefully accessing their reaction to the news within the next few days, he added.
Young farmers up to 35 years of age will still be exempt from stamp duty: this measure has been extended for the next three years and IFA leader, John Dillon said the budget decision to renew relief on land transfers to young-trained farmers is also welcome.
He added: “Farming is a capital intensive industry and the changes in capital allowances on machinery, in capital gains tax indexation and rollover relief, and in stamp duty are all very negative for farm investment.”
Indexation on land sales will cease from the end of December 2002, but will be applicable up to that date: in other words, if land is sold is 2005, indexation will apply from the time of purchase up to 2002, which, in effect gives a soft landing to the removal of this inflation-index measure.
However, the changes wrought in this budget, including lower capital allowances on machinery, higher excise duty, higher VAT rates and stamp duty will all have their effect on farm incomes and consequently on the farming property market.
The new measures will have an immediate impact on land sales. Already, auctioneers are wondering whether sales, which have been agreed, but are not finalised, will fall through, especially in larger sales where the new stamp duty rate of 9% applies (on commercial property deals over 150,000).
Paying capital gains on CPO money will not sit easily with those farmers who’ve had their livelihood disrupted by roads and the inference from some auctioneers is that the money may be invested elsewhere, other than in farming.
As one leading agricultural auctioneer in Limerick succinctly put it: “it’s easier to open and close a door in Limerick city than to spend your time milking cows” referring to investment in residential property by farmers.
With a 20% take for capital gains, and with the relatively low return from the investment, purchasing farm land at the 3% higher stamp duty rate for land sales over 150,000 is going to slow down the market, especially in the short term, as the changes are assimilated.
An expanding farmer will certainly think twice before selling his smaller holding or outlying farm to purchase more land, the combined effects of the non-deferral of Capital Gains and the increase on stamp duty can add to the overall cost of expansion. As John Dillon said in his statement following the budget last week: “Farmers are particularly exposed to an unacceptably high inflation rate of 4.8% in Ireland next year, in contrast to a rate of less than 2% in the overall euro zone. With very low product prices and static direct payments, inflation is now seriously eroding farmers' living standards”.
Higher land prices and decreasing income levels could have a serious effect on the rural property market, thriving in recent years, but which could now go into decline as confidence in the sector wanes.
Money from CPOs and other farm sales may find its way into other investment areas as those in the industry take a long, hard look at the future of agriculture.
In contrast, Donncha Collins of FDC Group seems quite sanguine about the effects on land sales. He feels that farmers with CPO compensation will still be willing to buy land, despite the 20% CGT and increased stamp duty levels, because farming is their chosen career in life. There will be an impact, he says, but the full effect will not be seen immediately.
