Protection sought on capital taxes relief
Views were sought on current agri-taxation reliefs, exemptions and policy initiatives, and what changes should be made.
On capital taxes — these being capital gains tax, stamp duty and gift or inheritance tax (known as capital acquisitions tax or CAT) — the submissions were a mixed bag.
On CAT, many proposals acknowledged agricultural relief as being a cornerstone without which there would not be successful transfer of family farms from one generation to the next.
Agricultural relief works be exempting up to €2.25m worth of agricultural property from gift or inheritance tax in the case of transfers from a parent to children.
The IFA submission noted: “Any reduction in agricultural relief would therefore result in the breakup of some family farms and/or the selling of assets to pay tax. This would ultimately undermine farm restructuring, accession, and the viability of farm businesses, all of which would run contrary to the policy goals of Food Harvest 2020.”
While the point is valid, it is interesting to note that there was little criticism of the relief as it stands.
Other commentators suggested agricultural relief can be abused by non-farmers, with some suggesting that the relief should be tailored to incorporate a stimulus for transfers either to young farmers or to trained farmers.
In terms of new reliefs, IFA has proposed a new Phased Transfer Partnership (PTP) model offering a hybrid solution for transfers to the next generation. The model suggests that a farm could be transferred to a successor over a period of up to 10 years, with the family operating as a partnership in the intervening years.
The scheme could be encouraged with tax-free exemptions of up to €25,000 per partner.
On capital gains tax, the recently introduced farm restructuring relief gained much praise in many consultation submissions.
The relief allows a farmer to dispose of an outside block to acquire lands closer to home. However, most proposals suggested the scheme should be expanded to cater for whole disposals, and for investments continued after December 31, 2015, to encourage efficiency through consolidation of the fragmented land parcels land holdings which typically make up Ireland’s farms.
On stamp duty, many proposals acknowledged the two main reliefs as playing a high-ly important role. These reliefs are the young trained farmer exemption from stamp duty and consanguinity relief, which is a halving of the normal rates of stamp duty where the transfer is between blood relatives. The latter relief is scheduled to expire from December 31, 2014, and many submissions called for its continuance.
Last week, I looked here at land leasing, volatility, tax deductibility for capital expenditure, and stock relief.
Just to recap, the overall consensus from publicly available submissions is that the relief from income tax for leased land should be bolstered and extended beyond its current scope.
On volatility, the majority of submissions cited deposit type schemes similar to those available in other countries, which would allow a farmer to set-aside funds in good years to help with cash flow in poor years. This would be a considerable improvement from our existing income averaging arrangements.
Clever strategies such as recognising income on a cash-received basis were also recommended. This system also available in other major agricultural countries.
On availing of a tax deduction for capital expenditure, there was consensus amongst proposals that farmers should be able to write off expenditure against their incomes over a faster time period than is currently available. Some proposals suggested 100% write off in the year in which the expenditure was incurred, similar to the UK model (for amounts less than ÂŁ250,000).
Other proposals suggested a flexible write-off amount, which would help a farmer manage their taxation in times of income volatility. Both proposals have strong merits compared to the rigidity of our current system, which allows a write-off over a strict seven or eight-year period.
On stock relief, most proposals suggested a temporary 100% stock relief such as the system currently available to young trained farmers. However, as a method of keeping the overall tax package for farmers cost-neutral, some proposals suggested this relief could be clawed back on the disposal of the herd, or over a period of time.
It is expected that working groups will be established to give full consideration to the submissions, with the ultimate results being factored into the Budget in October.
www.coughlanaccounting.com
Chartered tax adviser Kieran Coughlan, Belgooly, Co Cork (086-8678296)
